Maintainable Earnings (Capitalisation of Earnings)
The maintainable earnings method values a business by applying an earnings multiple to a normalised, maintainable level of earnings (typically EBIT or EBITDA). The multiple reflects sector risk, size, and comparable transaction data.
This approach is widely used for established trading companies and owner-managed SMEs with stable histories. It is relatively simple and market-referenced, but multiple selection and earnings normalisation are subjective and often contested between party-appointed experts.
Common questions
- How do experts normalise earnings?
- Experts adjust reported profits for excessive owner remuneration, related-party charges, one-off costs or income, and other non-recurring items to reach maintainable EBIT or EBITDA before applying a multiple.
- Where do sector multiples come from?
- Multiples may be drawn from listed comparables, private transaction databases, and sector-specific expert witness experience. The expert must explain why the chosen multiple is appropriate for the subject company.
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