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Basic Question 5 of 6
Estimating cash flows for a private firm is challenging because:
II. It is sometimes difficult to tell where salaries end and dividends begin in a private firm, since they both end up with the owner.
III. The accounting statements for private firms are often based upon different accounting standards than public firms, which operate under much tighter constraints on what to report and when to report.
I. Some personal expenses may be reported as business expenses in private companies.
II. It is sometimes difficult to tell where salaries end and dividends begin in a private firm, since they both end up with the owner.
III. The accounting statements for private firms are often based upon different accounting standards than public firms, which operate under much tighter constraints on what to report and when to report.
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Edward Liu
Learning Outcome Statements
explain the income, market, and asset-based approaches to private company valuation and factors relevant to the selection of each approach;
explain cash flow estimation issues related to private companies and adjustments required to estimate normalized earnings;
CFA® 2025 Level II Curriculum, Volume 4, Module 25.