What does the capitalization of benefits method focus on?

The capitalization of benefits method emphasizes the future economic benefits that an investment is anticipated to generate over a specific time period. This approach involves estimating the expected cash flows or other economic benefits that a business or investment can produce and then applying a capitalization rate to these benefits. The purpose is to determine a present value for future benefits, helping business valuators assess how much an investment is worth today based on its potential to provide income or returns in the future. By focusing on future economic benefits, the method aligns closely with the income approach to valuation, which seeks to understand how much income an asset will generate rather than its historical performance or physical aspects.

This method contrasts with other approaches like return on investment from tangible assets, which would only account for capital used in physical assets, or industry averages, which focus on comparative metrics without considering specific economic benefits. Asset liquidation values look at what an asset could be worth if sold off immediately, which is different from projecting economic benefits over time. Thus, the focus on future economic benefits distinctively positions this method within the various valuation techniques.