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CE Method

The Capitalized Earnings Method is a company valuation methodology which is based on the estimation of the present value of the company's expected future cash flows, using an appropriate capitalization rate. In particular, this method involves dividing the expected annual net cash flow by the capitalization rate, which is the rate of return required by investors to hold a similar investment. The result of this operation represents the net present value (NPV) of the company's future cash flows, which represents the value of the company itself.

This approach is theoretically equivalent to performing a discounted cash flow analysis under the assumption that projected growth equals the perpetual growth rate and margins remain constant. The current benefit stream can be normalized or adjusted to achieve a sustainable benefit stream. This method is particularly useful when there are predictable future cash flows, perhaps deriving from well-defined contractual conditions for some supplies of goods and services, well-defined commercial negotiations with customers or stable and predictable sales processes from the normal business management trend.

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