CAPITALIZATION OF MAINTAINABLE EARNINGS Definition

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CAPITALIZATION OF MAINTAINABLE EARNINGS is a valuation method; perhaps the most generally accepted method that involves capitalizing the future maintainable earnings by the application of a suitably chosen capitalization rate or multiple. The definition of earnings may be profit after tax ("PAT") or earnings before interest and tax ("EBIT"). This methodology, which in reality is a surrogate for the discounted cash flow method, requires consideration of several factors, including: a. an estimate of future maintainable earnings having regard to historical operating results and forecasts of future earnings; b. determination of an appropriate capitalization rate which will reflect the risks inherent in the business including sensitivity to industry risk factors, growth prospects, the general economic outlook and alternative investment opportunities; and c. a separate assessment of any surplus or unrelated assets and liabilities which are not essential to the continuing earning capacity of the business operations.

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MERCHANDISING CONCERN is an entity that derives its revenue through the provisioning of products provided or manufactured by others. See MANUFACTURING CONCERN.

MARKETING LEVER is anything that provides positional advantage or power to act effectively: Potential levers may be price, brand name, corporate image, broad distribution, effective advertising, etc.

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