Earning Capitalization Method - Business Valuation

The video tutorial explains the income-based method of business valuation, focusing on calculating normalized earnings and using a capitalization factor, which is akin to a discount rate. It discusses adjustments for atypical gains and executive compensation. For startups, growth is considered using the Gordon growth model, adjusting the discount rate by subtracting the growth rate. The tutorial also covers methods to determine discount rates, such as the build-up method, and highlights challenges in valuing startups due to the lack of mature market data.

What is the build-up method and why is it not effective for startup ventures?

Describe the earnings capitalization method of business valuation.