A Guide To Return On Investment


CAPITALISATION OF EBIT (Maintainable Earnings after management or fair owner's wage)

Leasehold Businesses Cap Rate Multiple
High Risk - e.g. blue sky, just established, projection only, declining profitability. *50 - 66% 1.5 - 2 x
Above Average Risk - e.g. specialist, restaurants, trade, building, fashion, seven days per week, no staff, established under three years. *38 - 42% 2.4 - 2.6 x
Average Risk - e.g. food, retail, manufacturing, service, 5½-6 days, mum and dad owners, some staff, growth up to 10% p.a. well established. *30 - 35% 2.8 - 3.3 x
Low Risk - e.g. high growth, wholesale, well systemised, managed, well staffed, five days per week, long established, high value assets. *25 - 28% 3.5 - 4 x
Corporate Appeal - e.g. fully managed, high profits, synergy in merger. *14 - 20% 5 - 7 x


The table above illustrates types of businesses and risk rates (there is a grey area between all, as some businesses can be deemed to be just above or just below average depending on the variables listed above).