Valuation Glossary

Capitalization structure, or capital structure, refers to how a company raises money to fund its operations. It is the mix of debt and equity used by a company. Debt includes borrowed money that needs to be repaid with interest, while equity represents ownership in the company. The capitalization structure shows the proportion of debt and equity in a company's overall financing. A high debt-to-equity ratio means more reliance on debt, while a lower ratio means more reliance on equity. The capitalization structure is important for financial stability and managing risk. It can change over time as companies raise funds or repay debt.

The capitalization rate, or cap rate, is a percentage used in real estate and business valuation to estimate the potential return on investment. It is calculated by dividing the net operating income (NOI) of the property or business by its value or purchase price.


A higher cap rate indicates a higher potential return but may also suggest higher risk, while a lower cap rate suggests a lower potential return with potentially lower risk.


The cap rate is used by investors and appraisers to estimate the value of income-generating properties or businesses. By applying the cap rate to the net operating income, they can get an approximation of the investment's value.


It's important to consider other factors and valuation methods alongside the cap rate for a more accurate assessment. The cap rate is influenced by factors such as location, property type, market conditions, and risk profile.

The Capitalization of Earnings Method is a way to determine the value of a business or investment based on its expected future earnings. It involves dividing the projected earnings or cash flows by a capitalization rate. The capitalization rate reflects the expected return on investment and the level of risk associated with it. By using this method, investors can estimate the value of an investment based on its income potential. However, it's important to consider other factors and valuation methods for a more accurate assessment.

A capitalization factor, also known as a cap rate, is a percentage used to estimate the value of an income-producing property or business. It is determined by dividing the Net Operating Income (NOI) by the purchase price or value of the property/business. The capitalization factor reflects the rate of return an investor would expect to receive. A higher capitalization factor suggests a lower value and potentially higher risk, while a lower capitalization factor indicates a higher value and potentially lower risk. The capitalization factor is used alongside other methods to determine the value of an investment.

Capitalization refers to the total value of a company's stocks, bonds, and other financial instruments. It represents the combined worth of all the company's outstanding securities. It's commonly used to measure the size and value of a company in the market. Market capitalization, specifically, refers to the value of a company's outstanding shares. It helps investors and analysts understand the relative size and valuation of a company.