This page lists recent articles related to corporate finance on this website.
Illiquid assets are often sold at a discount compared to comparable liquid assets when estimating value using multiples of revenues or cash flows or earnings. Studies show a 35% discount for illiquid assets (Maher 1976). How can you compute the liquidity discount- the penalty for not being a liquid asset?
On this page, we address the question: “How is the liquidity discount arrived at?”
Illiquid assets are often sold at a discount compared to comparable liquid assets when estimating value using multiples of revenues or cash flows or earnings. Studies show a 35% discount for illiquid assets (Maher 1976). Is that liquidity discount always appropriate?
We discuss the question: “When is a liquidity discount appropriate?”
Private companies are often sold at a discount compared to publicly listed companies when estimating value using multiples of revenues or cash flows or earnings. Studies show a 30% discount for US private companies and up-to 50% discount for overseas companies. (Koeplin 2005) There are specific reasons when a private company discount applies and when a private company discount does not apply.
On this page, we discuss when a private company discount is irrelevant!
A control premium is a premium that a buyer is willing to pay over and above the market price of a publicly traded company to buy a controlling ownership stake in a company. Many models add a percentage premium to the DCF valuation arrived at to account for management control. Is this always a valid approach? Are there occasions, when a control premium must not be added?
We discuss this question: “What conditions make a control premium irrelevant?”
The DCF valuation model considers the present value of future cash flows of the business to be the driver of value. Could there be more that must be considered when arriving at the value of your business using the DCF valuation model?
On this page, we consider the question: “What additional liabilities must you consider after you have valued a firm using the DCF method?”
Companies invest in each other for a variety of reasons. The accounting for these cross-holdings is specified by the SEC guidelines. Generally speaking, a company has more than 50% ownership of another firm and/or exerts influence, the investment is considered as a majority interest. When the SEC prescribed conditions are met, the financials of the subsidiary company are consolidated in the parent company’s financial statements. When you are valuing the parent company, how does the value of majority interest and minority interest/shareholders get reflected in your DCF valuation model?
We address this question “Where does majority interest feature in your DCF valuation?” here.
Companies invest in each other for a variety of reasons. The accounting for these cross holdings are specified by the SEC guidelines. Generally speaking, a company has less than 50% ownership of another firm and does not exert influence, the investment is considered as a minority interest. When the SEC prescribed conditions for minority interest are met, the financials of the subsidiary company are not consolidated in the parent company. When you are valuing the parent company, how does the value of minority interest get reflected in your DCF valuation model?
We address this question “Where does minority interest feature in your DCF valuation?” here.
The DCF valuation model considers the present value of future cash flows of the business to be the driver of value. Could there be more that adds value to the business or company?
We address this question here: “What additional assets must you consider after you have valued a firm using the DCF method?”
The DCF valuation model considers the present value of future cash flows of the business to be the driver of value. Could there be more that adds value to the business or company?
We address this question here: “What could you have missed out on if you did a DCF valuation?
The risk of bankruptcy is real. This may be truer for some companies over other companies – those with higher debt levels are considered riskier than those with less debt. Nevertheless, you must account for this additional risk. But how do you estimate the additional risk to account for it?
We address the question: “How can you estimate the probability of bankruptcy of a firm?”