Capitalization Factor Definition | Finance Dictionary | MBA Skool-Study.Learn.Share.
Capitalization factor is a multiple or a divisor which is used to convert expected income or benefits of a particular period into a value. It is used in the valuation of businesses (using the capitalization of earnings method). It is computed as the inverse of the expected rate of return.
For example:- If the expected rate of return is 5%, the capitalization factor would be 1/.05=20.
Suppose the expected earnings of a business are INR 1,00,000 , the value of the business would be INR 20,00,000.
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