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Build a supportable valuation range by checking the company’s financial inputs, estimating value with the methods the evidence can support, and then accounting for debt and the rights of the specific security you may buy. The result is an estimate—not a market quote—and its usefulness depends on making the assumptions and uncertainties visible.
Start by defining what “value” means
Before calculating anything, record the valuation date, purpose, geography, and applicable accounting or valuation framework. Specify whether you are estimating enterprise value, equity value, or the value of a particular share or ownership interest. These are different things, and an operating-company valuation does not by itself tell you what a particular investor’s security is worth.
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Also distinguish fair value from investment value. Under IFRS 13, fair value is an exit-price measure based on market-participant assumptions at the measurement date. An investor’s own estimate may differ if it reflects that investor’s expected return, financing assumptions, or strategic benefits. IFRS 13 applies when another standard requires or permits fair-value measurement, subject to its scope and exceptions; it is not a universal rule for every private investment.
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Choose methods that fit the company and the evidence
Use more than one approach where the available information makes that possible. Explain why each method deserves its weight and reconcile the results rather than mechanically averaging them. The CFA Institute’s 2026 curriculum reading describes the familiar income, market, and asset-based approaches; the right mix depends on the company and the quality of the evidence.
#1 Best Overall
| Approach | How it estimates value | Most useful when | Key cautions |
|---|---|---|---|
| Income | Projects cash flows or earnings available to investors and discounts them to present value. | Forecasts and the company’s cash-generation economics can be assessed. | Results depend on forecast assumptions, the discount rate, and terminal value. Private-company risk and financing profile may affect the discount rate. |
| Market | Applies a multiple from comparable public companies or relevant transactions to an appropriate company metric. | There are sufficiently relevant peers or transactions and a metric that fits the business. | Peer selection, measurement date, transaction terms, and differences in growth, risk, and cash generation can change the result. |
| Asset-based | Estimates underlying assets less liabilities. | The business is asset-heavy, a holding company, or distressed. | It may be less informative for a going concern whose value chiefly reflects future earnings or growth; there is no universal rule that it should dominate in a particular case. |
Verify the financial baseline before forecasting
Request historical financial statements, interim results, forecast support, debt schedules, capitalization information, and evidence for material adjustments. Establish whether the statements are audited, reviewed, or management-prepared; those labels describe different levels of assurance, so do not treat them as interchangeable.
Reconcile inconsistencies between statements, management materials, and supporting records. Separate recurring operating performance from owner-specific, related-party, one-time, or transaction-related items. An adjustment to earnings or cash flow should have supporting evidence and a reason it would not recur under a new owner. Normalization is not a license to remove inconvenient costs.
Rank #2
Keep actual results separate from projections. For each significant forecast input, identify its source—such as historical performance, a signed contract, or a management assumption—and note what evidence could confirm or disprove it. If key financial information is missing or difficult to reconcile, reflect that limitation in the range and in the diligence plan rather than disguising it with a precise point estimate.
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A discounted cash-flow (DCF) analysis estimates the present value of forecast cash flows or earnings available to investors. Its output is only as credible as the operating forecast and the choices used to convert future value into present value.
- Set the forecast horizon. State how many years you project and why the company’s plans and available evidence support that period.
- Make operating drivers explicit. Show the assumptions behind revenue growth, margins, and the reinvestment needed to support the forecast. A forecast that grows sales without accounting for the cash or investment required to achieve that growth is incomplete.
- Explain the discount rate. Document how it reflects the company’s risk and financing profile. Consider relevant private-company factors, such as size and limited access to public markets, and explain any company-specific risk assumptions.
- Show the terminal-value method. State how value beyond the explicit forecast period is estimated and expose the assumptions. Terminal value can represent a substantial part of a DCF result, so a single output without a terminal-value sensitivity can create false confidence.
- Test a range of inputs. Show how the estimate changes when growth, margins, reinvestment, the discount rate, terminal assumptions, financing needs, or exit timing change. Identify which assumptions move the result most.
Do not present one DCF result as though it were uniquely correct. The useful result is a range tied to stated assumptions, with the most consequential uncertainties made clear.
Select and apply market evidence carefully
For a market approach, choose either comparable public companies, relevant transactions, or both where evidence permits. A peer is not comparable merely because it operates in the same broad industry. Assess similarity in business model, risk, growth, and ability to generate cash, and explain meaningful differences that require adjustment.
Rank #4
- Choose a metric that matches the economics. State which financial or operating measure receives the multiple and why it is appropriate. The IFRS Foundation’s educational example selects price-to-book for a bank because equity capital is central to how that type of business generates earnings.
- Record the evidence and date. Identify the peer or transaction set, the metric measurement dates, and the source of the underlying data. Market conditions and company performance can change, so a multiple without a date is hard to interpret.
- Explain adjustments. Describe how differences in growth, risk, or cash generation affect the comparison. Avoid selecting only the peers or transactions that support a preferred answer.
- Read financing terms, not just the headline. A recent financing or transaction can inform value, but its date, terms, and security rights matter. The price paid for a preferred security with particular rights is not automatically the value of common shares.
Report the selected metric and the resulting range, together with the rationale for the peer set and adjustments. If the available comparisons are weak or stale, say so and give them less weight instead of implying a level of precision they do not support.
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An asset-based estimate starts with the value of underlying assets and subtracts liabilities. It can provide a useful perspective for an asset-heavy business, holding company, or distressed company. For a going concern whose value mainly reflects future earnings or growth, an asset tally may not capture the source of its value. Treat it as a cross-check or a more central method only when the company’s circumstances make that choice defensible.
Best Value
Bridge enterprise value to the security you would buy
Once you have an operating-company enterprise value estimate, account for debt and other claims senior to common equity before treating the remainder as equity value. Then examine the rights attached to the particular security under consideration. This bridge is essential: two securities in the same company can have different economic value.
- Review debt and other senior claims, using current capitalization information and debt schedules.
- Read the security terms for preferences, conversion features, voting rights, transfer restrictions, and other rights that could affect proceeds or control.
- Assess whether control or marketability adjustments are justified for the specific interest and transaction. CFA Institute guidance identifies control premiums and lack-of-control or marketability discounts as situation-dependent; do not apply a canned percentage without evidence tied to the case.
SEC-filed fund disclosures can illustrate how valuation practices are described, but an individual fund’s disclosure is not a universal valuation standard. For a material investment, the transaction documents and capitalization details are part of the valuation evidence, not paperwork to review after choosing a headline price.
Turn uncertainty into diligence and a decision range
Private-company shares generally lack an active market price that can settle disagreements about value. Limited disclosure and unobservable inputs make false precision especially risky. Present a range, state the assumptions behind its low and high ends, and connect each important uncertainty to a diligence question or a potential change in price.
| Assumption to test | What to examine | How it may affect the estimate |
|---|---|---|
| Revenue and growth | Historical results, forecast support, customer or contract evidence, and the basis for management projections. | Changes expected cash flows and may alter the relevance of growth-sensitive peers. |
| Margins and recurring costs | Support for adjustments, related-party arrangements, owner-specific costs, and whether removed costs would recur. | Changes normalized earnings or cash flow used in both income and market approaches. |
| Reinvestment and financing | Investment needs, debt schedules, and funding assumptions. | May reduce cash available to investors or change the risk and financing profile. |
| Discount and terminal assumptions | Discount-rate build-up, forecast horizon, terminal method, and sensitivity cases. | Can materially move a DCF estimate, especially when terminal value carries substantial weight. |
| Comparable evidence | Peer or transaction fit, measurement dates, metrics, terms, and adjustments. | May change the multiple range or reduce the weight given to the market approach. |
| Capital structure and security rights | Debt, senior claims, capitalization, preferences, conversion, voting, and transfer terms. | Changes the bridge from enterprise value to the value of the specific security. |
For competing offers, compare economic terms and rights as well as headline valuation. A higher stated company value does not necessarily mean better proceeds for your security if senior claims or security terms differ.
For an actual transaction, refresh market data and confirm the relevant accounting, tax, securities, and legal requirements for the jurisdiction and deal. A qualified valuation or financial due-diligence professional may be useful when the investment is material or the evidence is difficult to reconcile.
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