Private Company Valuation

Question 1

Private vs. Public Company - Similarities and Contrasts (7)

Answer 1

stage in life cycle
Size
overlap of shareholders and management
quality/depth of management
quality of financial information
pressure from short term investors
tax concerns

Question 2

Stock Specific Factors that affect valuation of private companies (3)

Answer 2

Liquidity of Equity Interest In Business
Concentration of Control
Potential Agreements Restricting Liquidity

Question 3

Transaction Related Valuations (5)

Answer 3

Private Financing
IPO
Acquisition
Bankruptcy
Share Based Payment

Question 4

Compliance Related Valuations (2)

Answer 4

Financial Reporting
Tax Reporting

Question 5

Private Company Valuation Methods (3)

Answer 5

Income Approach - values asset as the PV of income expected from it
Market Approach - values asset based on pricing multiples from sales of assets viewed as similar to the subject
Asset-Based Approach - values a private company based on the values of its underlying assets less value of liabilities

Question 6

Earnings Normalisation

Answer 6

earnings adjusted for non-recurring, non-economic or other unusual items to eliminate anomalies and/or facilitate comparisons

Question 7

Capitalised Cash Flow Method

Answer 7

valuation using a growing prep (stable growth FCFE model), assumes stable future operations