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Different Private Equity Valuation Method


Are you considering getting funding from outside for your business? Then, you should consider an equity evaluation to determine the market value of your company. Equity valuation is the term used to describe all the tools and techniques investors use to estimate the value of a company. Accounting standards state those assets less liabilities equals the book value for shareholder’s equity on the balance sheet. Equity valuation methods are used to estimate the value of a company. 

This method is based on the assumption that, in the end, the equity or stock is determined by the company’s fundamentals. Put, equity valuation is a value that determines the net worth of a company. 

What is Private Company Valuation? 

Private company value is the set of methodologies used to determine an intrinsic value for a private firm. We can observe the share prices and the number of outstanding shares for public companies by looking at filings. Market capitalization is the sum of the share price and stock price. 

This approach will only work for private companies if publicly listed stock prices. Private companies are often subject to different accounting and reporting requirements than public companies, so their financial statements can be inconsistent. 

Private Equity Valuation Method 

The methods for valuing equity are: 

  • Market Approach of Valuation Method 

The market approach is one of the most common methods used in private equity. The market approach is a method of valuing companies that compares the target to similar companies within the same industry which have been recently sold or publicly traded. This method assumes the target company’s value is similar to comparable companies based on financial performance, market position, and growth potential. 

  • DCF OR Discounted Cash Flow 

DFC, or Discounted Cash Flow, is an private equity valuation methods that uses future cash flows to estimate current investment values. The discounted cash flow method calculates an investment’s value based on projected earnings. This method applies to business owners who want to change their business and investors looking to invest in financial assets. 

The discounted cash flow analysis aims to calculate the amount received after adjusting for the time value. The time value concept is based on the assumption that the dollar’s value today is greater than its value in the future because it is invested now. This concept is used when an investment expects to receive a future return. 

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  • Assessment of Assets Based On Valuation 

The asset-based approach adds up all the assets of a firm. This method values a business based on its viability or liquidity. This method focuses mainly on the net asset value or fair market value. Calculate the net assets and subtract the net liabilities to get the cost of re-creating the company. It will leave you little room to decide what assets and liabilities to include in the valuation and how to value each. 

You can also use two other methods to evaluate assets. Market approach: This method looks at similar businessesand their value. TheEarnings Approachis a method that estimates the amount of profit the business will earn in the future. The asset-based approach can have a value significantly higher than all assets in the business. 

  • Market Value Method 

This method of valuing involves comparing the company you are valuing to similar firms recently sold on the market. Market value is used for estimating a piece of property’s value or the value of a closely held company. The value of a company is accurately estimated if you have many similar firms to compare it to. 

This method estimates the value of business ownership interests and securities. It analyzes the sale of similar assets, and adjustments are made to minimize differences. The adjustments are based on the size, the quality and the quantity of the asset. 

  • Method Comparable 

This approach is based on the idea that the private equity industry should have a value similar to other equities. Stocks are compared to their competitors or firms with similar businesses. Any differences in value between firms that are similar could represent an opportunity. You can hold the equity until its value increases if it is undervalued. Investors can also do the opposite by shorting the stock and profiting from the position of their portfolio. 

There is a choice of two approaches to compare. The most common and first approach is to look at market comparisons of its competitors and rival companies. Common market multiples include price to earnings (enterprise value to sales), free cash flow, and price per book. Analysts compare margins with those of other companies to better understand how the company compares. Investors can argue that if a company has a lower average than its competitors, it will mature and see a significant increase in value. 

  • Book Value Method 

The book value method equals the purchase price of an asset less depreciation. Depreciation is the loss of value of an asset. Many factors, such as wear and tear of equipment and machinery over time, can cause it. 

The book value method is used in companies with a small growth rate and a low residual value. In times of financial stress and crisis, investors will look at book value instead of the money the bank could make. The book value represents the “breakup” of these companies. 



Private equity valuation methods help investors make informed decisions and minimize risks while maximizing returns. The unique characteristics of an investment and data availability will determine the valuation method. No matter the chosen method, a thorough analysis, accurate information, and a clear understanding of the risks are essential for successful private equity investment. 

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