Build Up Method - Business Valuation

The video tutorial explains the build-up method of business valuation, which is similar to the earnings capitalization model. It involves determining normalized earnings and dividing them by a capitalization factor to estimate a company's value. The capitalization factor is derived from the expected rate of return, which includes the risk-free rate, equity risk premium, size premium, and company-specific premium. The tutorial details how to calculate these components and emphasizes the importance of assessing company-specific risks. The build-up method focuses on determining the discount rate for extrapolating company value.

What is the primary focus of the build-up method in business valuation?

How do you determine the capitalization factor in the build-up method?

What components contribute to the expected rate of return for a company?

Explain the significance of the risk-free rate in the context of business valuation.

What role do company-specific risks play in determining the capitalization factor?