What is the most reliable way to value private companies?

由人工智能和领英社区提供技术支持

Valuing private companies is a challenging task for corporate finance professionals, investors, and entrepreneurs. Unlike public companies, private companies do not have readily available market prices, financial statements, or analyst coverage. Moreover, private companies often have unique characteristics, such as growth potential, competitive advantages, or intangible assets, that make them difficult to compare with peers. How can you estimate the fair value of a private company using reliable and consistent methods?

此文章中的业界达人

由社区从 4 条内容中精选。了解更多

Ndeh William .A, CAT, ACCA, CDFP, FMVA Cand

Finance Rockstar? | Corporate Finance Specialist ??| Digital Finance Specialist ????
Ted Schama

Joint managing partner of Shelley Sandzer. Connecting the best people with the best places. Leasing for the best…

1 Market approach

One common way to value private companies is to use the market approach, which involves finding comparable public companies or transactions and applying multiples or ratios to the target company's financial metrics. For example, you can use the price-to-earnings (P/E) multiple, the enterprise value-to-EBITDA (EV/EBITDA) multiple, or the revenue multiple to estimate the value of a private company based on the average or median values of similar public companies or deals. The market approach is relatively simple and intuitive, but it also has some limitations. You need to adjust the multiples for differences in size, growth, risk, profitability, and industry between the target and the comparables. You also need to have access to reliable and timely data on the public companies or transactions.

添加您的观点

Ted Schama

Joint managing partner of Shelley Sandzer. Connecting the best people with the best places. Leasing for the best landlords in London and internationally. Hospitality property and finance with one voice.
举报内容
In the case of hospitality, the multiple of EBITDA is considered by a number of factors. Most important is the likelihood of scaleability so a purchaser can see a roadmap for growth, profit and a multiple of sale in a foreseeable target timescale. Factors will include brand strength, management team and realistic examples and locations for growth. Ideally those opportunities are already proven so london multiple times or outside of London at least once if talking national growth and likewise for international growth which enhances the multiple considerably

已翻译

赞
Luis Gustavo Costa ??

Cloud | Web3 | Business Development | GTM | SaaS | DEFI | Crypto | Salesforce | ARR | Marketing | Strategy | Sales | Budget | Controlling | Finance | Cost | Audit | SAP | FP&A | Supply Chain | Revenue | Growth
举报内容
The most reliable way to value private companies typically involves a combination of approaches such as discounted cash flow analysis, comparable company analysis, precedent transactions, assessing the company's assets and liabilities, and considering qualitative factors like industry dynamics and management quality. Additionally, engaging with industry experts and consultants can provide valuable insights. Ultimately, the reliability of the valuation depends on the thoroughness of the analysis and the accuracy of the assumptions made.

已翻译

赞
John Isted

Senior Project Manager
举报内容
I agree with Ted on this one. He’s completely right about the EBITDA being the most important factor! It’s the only way to really know how well the company/business is doing and is going to be the most reliable source of cross checking performance with copper bottom black and white data!

已翻译

赞

2 Income approach

Another popular way to value private companies is to use the income approach, which involves projecting the future cash flows of the target company and discounting them to the present value using an appropriate discount rate. The most widely used income method is the discounted cash flow (DCF) analysis, which estimates the value of a private company based on its expected free cash flows and its terminal value. The DCF analysis requires more assumptions and inputs than the market approach, such as the growth rate, the operating margin, the capital structure, the cost of capital, and the terminal value method. The income approach is more flexible and comprehensive than the market approach, but it also depends on the accuracy and validity of the projections and the discount rate.

添加您的观点

Ndeh William .A, CAT, ACCA, CDFP, FMVA Cand

Finance Rockstar? | Corporate Finance Specialist ??| Digital Finance Specialist ????
举报内容
I once had a valuation gig. I couldn't use the market approach nor the asset-based because it was difficult to find a proxy company and the company under valuation was not experiencing issues relating to liquidation. I used the income-based approach which is reliant on future potential earnings and the underlying risk associated with future profits. That is future income discounted to present values (DFC). This metric indeed requires some degree of assumptions, but I still see it as the best approach for valuing a company on a going-concern basis. I will like to mention that valuation is both an act and a science. Meaning, it requires a combination of financial analysis, market research, and subjective judgment.

已翻译

赞

3 Asset approach

A third way to value private companies is to use the asset approach, which involves adding up the fair values of the individual assets and liabilities of the target company. The most common asset method is the adjusted net asset value (ANAV) analysis, which adjusts the book values of the assets and liabilities to reflect their current market values. The asset approach is useful for valuing private companies that have significant tangible assets, such as real estate, equipment, or inventory, or that are in distress or liquidation. However, the asset approach does not capture the value of intangible assets, such as goodwill, patents, or customer relationships, or the value of future earnings potential.

添加您的观点

4 Hybrid methods

In some cases, you may need to use a combination of different methods to value private companies, especially if they have complex or mixed business models, such as e-commerce, software, or biotechnology. For example, you can use the market approach to value the established segments of the business and the income approach to value the growth segments of the business. Alternatively, you can use the income approach to value the core business and the asset approach to value the non-core assets. Hybrid methods can provide a more comprehensive and balanced view of the value of a private company, but they also require more judgment and analysis.

Valuing private companies is not an exact science, but a skill that requires knowledge, experience, and creativity. By using different methods and sources of information, you can improve your confidence and credibility in your valuation results.

添加您的观点

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

添加您的观点

Corporate Finance

+ 关注

给文章评分

我们借助人工智能创建了此文章。您认为这篇文章怎么样？

很棒不太好

举报此文章

查看全部

What is the most reliable way to value private companies?

1

2

3

4

5

1 Market approach

2 Income approach

3 Asset approach

4 Hybrid methods

5 Here’s what else to consider

Corporate Finance

给文章评分

感谢您的反馈

更多Corporate Finance相关文章

更多相关阅读内容