Estimating Capitalization Rates for the Excess Earnings Method Using Publicly Traded Comparables

The Excess Earnings Method requires the estimation of two capitalization rates, and the difficulty of estimating these has been suggested as a deterrent to greater use in business valuations. This paper presents a mathematically-derived set of formulas which allow the valuator to derive capitalization rates from publicly traded comparables. The paper provides implementation guidance and surveys empirical research which supports the use of the Excess Earnings Model for practical valuation work.