Raymond Rath, Managing Director of Globalview Advisors, is working on an update to the chapter, “Private Company Valuation”, which is included in the CFA textbook Equity Asset Valuation. The chapter first appeared in the 2nd edition of Equity Asset Valuation. The chapter was updated for the 3rd edition released in 2015. This chapter is included in the candidate body of knowledge as an assigned reading for CFA Level II candidates globally.
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The chapter, “Private Company Valuation”, provides an overview of key information pertaining to the valuation of interests in private companies. Key areas discussed in the chapter include:
- Comparison of public company and private company valuations.
- Explains various definitions of value and demonstrates how different definitions can lead to different estimates of value.
- Explains the income, market, and asset-based approaches to private company valuation and factors relevant to the selection of each approach.
- Explains cash flow estimation issues related to private companies and adjustments required to estimate normalized earningss
- Explains factors that require adjustment when estimating the discount rate for private companies.
- Explains and evaluates the effects on private company valuations of discounts and premiums based on control and marketability