What formula is often used to determine investment value?

The capitalization rate is a key formula used to determine investment value, particularly in real estate and income-producing properties. This formula provides a way to assess the potential return on an investment based on its income-generating capacity. The capitalization rate is calculated by dividing the net operating income (NOI) of the property by its current market value or purchase price.

This approach allows investors to estimate the expected rate of return on an investment by comparing the income it generates to its value. The higher the capitalization rate, the more attractive the investment might be, as it suggests a higher return relative to the price of the property.

While other formulas like return on equity, net present value, and return on investment have their own applications in assessing investment performance, they do not specifically provide a direct method for calculating investment value in the same straightforward manner as the capitalization rate does within the context of real estate valuation.