- CFA Exams
- 2023 Level II
- Topic 5. Equity Valuation
- Learning Module 27. Private Company Valuation
- Subject 1. Private and Public Company Valuation: Similarities and Contrasts
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Subject 1. Private and Public Company Valuation: Similarities and Contrasts PDF Download
Private and public companies are different in many ways. Company- and stock-specific factors are used to mark key differences. They may influence the selection of appropriate valuation methods and assumptions for private company valuations.
These factors characterize the company itself.
Compared to public companies, private companies:
- Are typically at the earliest stages of development (stage in lifestyle) while public companies are well developed and further advanced.
- Are typically smaller (size).
- May not have agency issues (overlap of shareholders and management).
- Have less management depth.
- Lower quality of financial and other information.
- Less pressure from short-term investors.
- Tend to report less taxable income and tax payments (tax concerns).
The characteristics of the stock of a private company are different from that of public companies. These factors are generally negative for private company valuation. Private companies usually have:
- Less liquid equity interests.
- Concentrated control.
- Potential agreements restricting liquidity.
Learning Outcome Statementscompare public and private company valuation;
CFA® 2023 Level II Curriculum, Volume 4, Module 27
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