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18 Differences Between Valuing Public and Private Companies

Unlocking the disparity between the valuation of public and private businesses is paramount. Can the multiples attributed to public corporations be extended to small and mid-sized enterprises?

Delving into these nuances is a crucial stride toward comprehending the paramount determinants steering your company’s worth.

Public enterprises often find themselves at the mercy of the capricious stock market, a driving force behind nearly every contrast expounded in this piece. The majority of these differentials can be elucidated through the prism of time. Those investing in public firms adopt a fleeting temporal viewpoint, while proprietors of private entities embrace a perspective that traverses the long run.

Acknowledging the sway of these dynamics over the extended term, we cannot disregard the prevailing impact of the market’s short-term mindset on the conduct of participants. As we delineate the pivotal distinctions in appraising public and private firms, the undercurrent of certainty prevails.

Deciphering the Distinction: 18 Factors Unveiling the Contrast in Valuing Private and Public Companies

The nuances that set apart the valuation of private and public enterprises are both enlightening and pivotal. This comprehensive examination revolves around 18 key facets that spotlight the essence of this contrast:

  1. Time Horizon: A long-term perspective versus short-term outlook.
  2. People & Stakeholders: Diverse interests shaping the company’s worth.
  3. Securities: Influence of publicly traded shares versus private ownership.
  4. Sophistication: Complex market dynamics versus controlled environment.
  5. Incentives: Varied motivations driving valuation considerations.
  6. Speculation: Market-driven speculations versus steady evaluation.
  7. Emotions: Emotional market sway versus informed decision-making.
  8. Information: Extensive disclosures versus selective transparency.
  9. Consistent Pricing: Public market fluctuations versus private stability.
  10. Economic Variables: Macro trends versus insulated impacts.
  11. Control: Limited control versus direct ownership.
  12. Expectations: Immediate market expectations versus intrinsic potential.
  13. Rumors: Impact of market rumors versus focused assessment.
  14. Regulation: Stringent regulations versus relative freedom.
  15. Complexity: In-depth financial scrutiny versus controlled intricacy.
  16. Financial Statements: Publicly accessible data versus limited insights.
  17. Geography: Global market exposure versus localized impact.
  18. Valuation Methods: Standardized metrics versus tailored approaches.

18 Differences Between Valuing Public and Private Businesses

Time Horizon

Public Enterprises: The realm of public companies is one beholden to their investors, a majority of whom sport a concise, short-term outlook. This dynamic throws myriad variables into the mix, sparking daily oscillations in company valuation as these factors intermingle. Quarterly performance snapshots become the benchmark for public companies, inviting unwavering pressure to deliver consistent results, quarter after quarter. Within this sphere, investors often indulge in fleeting holdings, with equity lifespan sometimes dwindling to mere months. In this theater, day traders seize stocks for minutes, even hours, before the next transaction. Speculators likewise play within this brief timescape. Such an abbreviated investment vantage point mandates that public enterprise owners navigate the seas of the short term—a critical factor to weigh when gauging their value.

Private Ventures: Private company proprietors, on the other hand, revel in a long-term panorama that spans not minutes, hours, or quarters, but decades. With a more concentrated cohort of stakeholders to appease, the stewards of private enterprises can steadfastly champion long-range aspirations, without the pressures of artificially inflating immediate gains. When sizing up a company, one must factor in the strategic objectives and the temporal scope that shape its fiscal trajectory. Public entities often dance with earnings to smoothen their trajectory and present a composed facade, aimed at pacifying external investors. In contrast, private businesses rarely tweak their financials to align with the multitudinous expectations of external forces.

People & Stakeholders

Public Companies: The intricate web of influencers shaping stock values encompasses a mosaic of entities: equity analysts from institutional money managers, prospectus and annual report authors, discerning accounting firms, mutual funds, hedge funds, pension funds, insurance companies, securities firms, credit rating agencies, independent research entities, investment banks, brokerage houses, and bank trust departments. This amalgamation also includes institutional investors entrusted with others’ assets, such as pension funds, insurance companies, endowments, and corporate retirement plans. This diverse assembly forms a collective with contrasting objectives, giving rise to divergent viewpoints that in turn drive swift market undulations. Public companies are thus compelled to skillfully manage a multitude of constituents, each with their own objectives, incentives, temporal perspectives, and outlooks. Indeed, for a CEO, shaping perceptions can be as pivotal as an investor’s grasp of game theory.

Remarkably, 80% of analyst recommendations lean towards a buy rating. The enigma? Incentives. When dissecting a public firm, assessing the incentives of the expert guiding your evaluation is paramount. Regulatory bodies like the SEC and FINRA strive to align motivations by erecting regulations that enhance disclosure and information flow to investors, consequently influencing market dynamics.

Media channels amplify market volatility by opining freely on public company worth. With information dissemination largely unchecked, media holds sway over stock prices. Through enticingly crafted narratives, outlets like The Wall Street Journal, The New York Times, Fortune, Business Week, Barron’s, television, magazines, movies, and radio deftly capture attention and bolster their consumer base. Yet, these sources, fueled by both economic and political objectives, serve as the primary data fount for individual investors. Remarkably, individual investors often bypass annual reports, meticulously edited by shrewd legal minds striving to eliminate rather than clarify risks. Can news sources be deemed impartial? This barrage of opinions comprises the bedrock of public sentiment, in turn, shaping equity values.

In the realm of public investment, one must factor in fellow investors’ opinions, for their perspectives can sway short-term asset valuations. A grasp of game theory becomes a prerequisite for navigating public securities.

Amidst the short-term clamor of the market, few investors rise to perceive the long-term intrinsic value of firms. Thus, the valuation of public companies hinges on a symphony of players, with diverse interests, entering and exiting the scene in the blink of an eye. In this arena, short-term valuations intertwine with the study of human behavior, alongside financial performance analysis.

Private Companies: The landscape for private entities reflects the serene, meandering roads of Switzerland, in stark contrast to Tokyo’s frenetic pace. In this realm, simplicity governs. With fewer stakeholders to appease, private companies revolve around two pivotal constituents: their employees and customers. Governance finds its essence in simplicity, unlike the multifaceted dynamics of public entities. Incentives find clarity: generate profits and minimize taxes. This intricate web of contrasting interests that colors public valuations gives way to a straightforward analysis in the private sector, where such convoluted scrutiny is seldom required.

Securities

Public Companies: Within the realm of equities lie an array of offerings — common stocks, preferred stocks, participating preferred, convertible preferred, warrants, bonds, calls, puts, options, derivatives, futures, forwards, swaps — a diverse universe that can sometimes feel as vast as the cosmos. Yet, don’t worry, the last three were just whimsical musings! The veritable symphony of equity types and their derivatives can be overwhelmingly intricate. Crafting a price for a public enterprise entails grappling with these multifaceted securities. The number of outstanding options and their influence on valuation, the premium affixed to stocks with added voting power — these are all threads that intricately weave the fabric of a company’s capitalization. Inherently complex due to the nature of public firms, comprehending a company’s capital structure is an essential facet of valuing it.

Private Companies: When entrepreneurs are queried about their company type, the typical response might be “the big one.” Upon prodding to discern between an S or C Corporation, the refrain echoes, “I’m not entirely sure; my accountant dubbed it ‘the big one.'”

This scenario underscores a common theme: the average private enterprise proprietor often lacks familiarity with the nuances of capitalization structures — common or preferred stock. The simplicity here arises from many private companies being family-held, with capitalization revolving around common stock. In this domain, valuing a private company tends to be more straightforward, often revolving around the assumption that the entity is a “big one” (C Corporation), with ownership consolidated within the family. Exceptions exist, but they are the minority. Consequently, valuing small, private endeavors takes on a relative simplicity when juxtaposed against the multifaceted valuation of their public counterparts.

Sophistication

Public Companies: The evolution of company valuation sophistication traces back to the seminal release of “Security Analysis” by Benjamin Graham and David Dodd in 1934. Prior to this milestone, public markets were often speculative realms driven by rumors and lacking reliable information on publicly traded companies. In a landscape dominated by dubious brokers capitalizing on investor naivety, fear, and greed, insider trading was rampant. The pivotal shift occurred with the establishment of the SEC in 1934, ushering in an era of accessible information and elevated sophistication. In today’s public market, investors employ a diverse array of advanced methods, tools, and software for valuation. From intricate financial modeling to cutting-edge supercomputers instantly processing trading data, valuing a public company demands intricate techniques, processes, and tools harmonized into a cohesive framework.

Private Companies: In comparison, the valuation methods for private enterprises can seem rudimentary. A significant number of private companies are appraised using EBITDA multiples, a metric demanding finesse and an adept understanding of myriad factors influencing a company’s value. However, due to limited valuation tools, the existing ones hold widespread sway in the private sector. While exceptions like venture capitalists employing discounted cash flow (DCF) methodologies do exist, they remain infrequent.

Incentives

Public Companies: The public markets swirl with incentives that often stray from harmony. Advisors chase after fees, while the media crafts tantalizing tales in a time-crunch to captivate readers. Analysts, wary of potential criticism, tend to echo consensus, fearing the sting of being wrong and the meagre gains from being right. In this dance, some may cloak contrarian views to avoid future accountability. The aversion to error fosters herd mentality, a force that can cascade into a viral frenzy with exponential consequences. When appraising a public company’s value, a prudent step is questioning the motives underpinning the information and opinions shaping your premise.

Private Companies: For proprietors of private ventures, stakes are deeply personal. Their wealth is intricately interwoven with their company’s value, aligning motives toward a singular goal — maximizing returns. The need to decipher motives in valuing private entities is often minimal, as the aspiration to enhance returns remains paramount. Deciphering the intentions of private company founders thus stands as a more straightforward endeavor, requiring less intricate unraveling of motivations.

Speculation

Public Companies: The ripple effects of speculation resonate through the realm of public equities, particularly when dealing with thinly traded shares. The surge in technical analysis — a methodology rooted solely in price and trading volume — further fuels speculative tendencies. Investors at times hinge their decisions purely on technical nuances like trading volume or price oscillations, sidelining fundamental business aspects.

Even if an analyst personally shuns technical analysis, accounting for these viewpoints becomes crucial while valuing a stock, given their potential sway over price dynamics. It’s not uncommon for investments in public equities to unfold devoid of any comprehension about the underlying business or its industry. Margin buying, synonymous with purchasing on credit, escalates speculative inclinations.

This speculative interplay undeniably leaves an imprint on the valuation of public companies, obliging one to factor these oscillations into the assessment.

Private Companies: In the sphere of private enterprises, speculative elements manifest through private investments sourced from family and acquaintances. Remarkably, these endeavors wield minimal influence over private company value, primarily due to the discreet nature of transaction terms. Speculative investments in private firms commonly manifest as illiquid, long-term commitments, distinct from the fluidity of tradable assets. Investors in private entities often overlook establishing buy-sell agreements, binding themselves to long-term ownership objectives without an exit strategy. Consequently, speculative patterns hold negligible sway over the valuation of private companies.

Emotions

Public Companies: The intricate interplay of emotions takes center stage within the realm of public markets. Here, the pendulum tends to swing to extremes in response to investor sentiment, sparking contagion-like behavior. Shareholders aim to steer the trajectory of owned stocks by voicing their opinions publicly, a strategic gambit to drive stock values upward. Should this gambit succeed, selling the stocks later at a higher price becomes a viable path to swift profit.

Herd psychology, the strategic dance of game theory, and momentum investing rooted in trading patterns — all these bedrock concepts illuminate the tapestry of investor conduct within public markets. In the short term, the actions of investors often resemble a game of chess: deciphering opponents’ moves becomes pivotal for crafting astute short-term investments. This mental framework’s pervasive hold radiates into valuations. Thus, assessing external perspectives becomes a linchpin of valuation.

Private Companies: Emotions unquestionably cast a shadow across the canvas of private enterprise operations, albeit with a more subdued effect on price dynamics. In most private companies, shareholders are few, and their investments remain largely illiquid, immune to open market trading. The emotional pulse of private shareholders seldom exerts substantial influence on their company’s value.

Information

Public Companies: In the wake of the 1929 market crash, the SEC emerged in 1934, a response to a speculative frenzy triggered by scant reliable information on public firms. The SEC’s mandate for regular information disclosure has refined the efficiency and credibility of securities markets. For, at the heart of any valuation lies sound information. Without precision, the landscape succumbs to speculation, whispers, and sensationalism.

By enforcing disclosure and mandating audited financial statements for public firms, the SEC sought to combat information dearth. Pre-SEC, institutional investors shied from risk-laden stocks. A 1929 study unveiled that 79% of public firms concealed annual revenues, a barrier deterring institutional investments. Left behind were speculative individuals, whose actions amplified, spiraling into the 1929 crash.

Accounting norms, too, diverged before 1934, confounding comparative analysis. Enter FINRA and other regulations, a collective drive towards efficient capital markets – a pillar for democratic capitalism. Capital’s flow should grace deserving industries, hence these bodies facilitate its movement, nurturing sectors primed for growth and returns.

Today, data courses through the stock market’s veins the instant it surfaces. Information, not speculation, fuels this arena. Over 100,000 analysts and investors seize data milliseconds after release, funneling it to million-dollar supercomputers. These electronic marvels sift through the deluge, while equity analysts craft exhaustive reports. Moody’s and Standard & Poor’s rate corporate bonds. Experts converge to dissect, evaluate, and classify data, ensuring investment choices stand on solid ground.

Valuation remains an art demanding judgment. Nonetheless, this realm has narrowed, with information’s proliferation, industry insights, and standardized valuation techniques converging.

As data flows ceaselessly, public companies strive to steer public perception. This drive shapes stock pricing, an undercurrent crucial to valuation.

Private Companies: In contrast, private company owners aren’t beholden to public disclosures. Operations and financials remain in the shadows, making information a rare commodity. Analysts venture into the realm of educated estimates while valuing comparable private companies. This dearth disrupts valuation, as value inherently hinges on relativity. Investors seek the optimal return, often by juxtaposing multiple investments. Yet, this journey grows tougher for private companies, where akin data is elusive, hampering return calculations.

Constant Pricing

Public Companies: Navigating public sentiment stands as a pivotal duty for any C-level executive in a publicly traded entity, considering its stocks’ daily appraisal. Shareholders have a firm grip on their shares’ value, meticulously tracked and documented over time. An intricate timeline of the company’s valuation history provides an insightful backdrop. A precise valuation at any juncture in a public company’s journey is within grasp, fostering a bedrock for comparative evaluations.

Private Companies: The proprietors of private enterprises discover their company’s true value only once—when a transaction unfolds. Unlike the constant appraisal dance of public counterparts, private firms experience a singular moment of valuation revelation. This sporadic feedback loop renders private company valuation more an art than a precise science, standing as a testament to the challenge it presents.

Economic Variables

Public Companies: The dynamic macroeconomic landscape casts a notable shadow over public companies, often surpassing the impact on their privately held counterparts. Interest rate fluctuations, currency exchange oscillations—these elements wield a pronounced effect. Should interest rates ebb, the value of utility stocks ascends. A public entity’s sales dance to the rhythm of economic metrics; a 2% GDP uptick could herald a 3.5% surge in consumer goods revenue.

This ever-shifting macroeconomic terrain beckons a short-term perspective, with rapid transformations driving the focus. Grasping the macroeconomic landscape becomes paramount to deciphering fleeting capital market fluctuations.

Private Companies: While a robust economy tends to usher in a buoyant stock market, its sway over private company valuation is comparatively subdued. The economic backdrop’s potency here rests on interest rates and debt financing availability—predicated on economic well-being. Absence of debt funding stifles M&A pursuits, pinching private company multiples. Elevated interest rates escalate debt financing costs, culminating in reduced acquisition valuations. This holds especially true for financial buyers, a primary player in the private domain’s acquisition landscape.

Control

Public Companies: The majority of investors wield a minority stake in businesses, tethering their returns to the whims of fellow investors. This limited influence translates to diminished value, standing below the allure of controlling interests. Valuing a public entity mandates discerning the blend of majority versus minority shareholders, augmented by integrating a control premium into predominant stakes.

Private Companies: The realm of private enterprises grants majority owners a firm grasp over financial and operational realms. Consequently, a controlling stake carries heftier value than its minority counterpart, warranting the application of a control premium. When assessing a private venture, gauging the capitalization tapestry alongside the magnitude of majority and minority stakes is imperative, their influence over control and valuation paramount.

The intricacies of control gain complexity when private firm ownership sprawls among multiple holders, more so when diverse stock classes exist. Consider a scenario of three owners: two with 49% each, and the third with a modest 2% stake, yet wielding a pivotal swing vote. Amidst disputes between the 49% stakeholders, the 2% holder ultimately holds the sway. Here, the 2% interest wields value far surpassing a strict pro-rata stance. These intricate dynamics color private company valuation, particularly with multiple stockholders or divergent classes of stock and their distinct voting prerogatives.

Expectations

Public Companies: The tapestry of public company valuation is woven with earnings projections. Envisioning earnings growth presents a challenge even for insiders, let alone external observers with limited insights into internal intricacies. These projections stem from intricate methodologies—past trends extrapolated through regression, moving averages, trend lines, or exponential smoothing. A notable fraction of a company’s value springs from future speculation, disengaged from historical performance. These prognostications pivot on investor sentiments, intertwining with their perceptions of the firm’s forthcoming fortunes. A stumble in meeting quarterly projections translates to investor disenchantment, casting shadows on their anticipations and weighing on stock prices. Public entities often lean towards conservative forecasts, striving to ensure goals are met.

Private Companies: The private arena enjoys respite from external pressures, barring perhaps internal or employee expectations—should transparency fuel open-book management. Unburdened by external dictates, private entities chart their course unhindered. However, the marketplace often discounts owner expectations (projections), valuing private companies based on their historical accomplishments rather than future potentials.

Rumors

Public Companies: The mere whisper of an acquisition rumor possesses the uncanny power to sway the trajectory of a public company’s value. Irrespective of their authenticity, rumors wield the potential to unleash stock price roller coasters. A heady mix of tantalizing speculations, a multitude of stakeholders, media amplification, raw emotions, profit motives, derivative complexities, and crowd psychology meld into a frenzy, propelling stock fluctuations into the stratosphere, defying even the savviest executive’s reins. Rational suspicions notwithstanding, the chessboard of short-term investing necessitates a strategic response to rumored tremors. Valuing a public entity transcends factual analysis, entailing an unraveling of the intricate threads of rumors that stitch public sentiment around a firm’s valuation. Ethical aspersions cast upon the company or its C-suite can orchestrate precipitous price dips—single-day plunges of 5% or more—acting as a stark reminder of rumors’ ripple effect.

Private Companies: Whispers of acquisitions reverberate through industries, cloaked in enigma surrounding transaction details. Although the rumors’ touch is lighter in the private sphere compared to their public arena counterparts, their impact lingers, albeit to a lesser extent.

Regulation

Public Companies: A tapestry of regulators, encompassing accounting firms, law practitioners, and credit rating agencies, orchestrates a symphony of oversight in the financial realms where public companies unfold their stories. These vigilant guardians foster a landscape of standardized conduct, yielding a consistent flow of dependable information—a bedrock for valuing public entities. This coherent fabric paves the way for precise evaluations and parallel analyses, aligning with comparable firms. The intricate web of regulation bestows investors with a shield of confidence, crucially underpinning the bedrock of investment deliberations.

Private Companies: Regulation within the private realm often finds expression through the owner’s innate compass, instinctual insights, or even their absence. An array of capitalization styles and management approaches paint the private landscape, with resilient entrepreneurs often building their ventures from the ground up, sculpting them with instinct-driven care. This ethos thrives in industries where swiftness reigns supreme, driven by competitive currents rather than regulatory tides. The regulatory landscape remains sparse in these domains.

Complexity

Public Companies: Public companies inherently bear a heightened level of intricacy compared to their private counterparts, rendering the process of valuing such entities notably more challenging. Several critical factors warrant consideration, including:

  • Derivatives: Options, forwards, futures, swaps, and more.
  • Hedge funds, speculation, short selling: Estimated to contribute to 50% of trading volume on the NYSE.
  • Diverse investment approaches: Quantitative analysis, market timing, shadow indexing, and sector rotation.
  • Assorted classes of stock.

Private Companies: The dialogue unfolds:

  • “What entity type is yours?”
  • “The significant one.”

Indeed, the multifaceted tapestry of the public markets pales in comparison to the labyrinthine intricacies that define the private domain.

Financial Statements

Public Companies: The valuation of public companies hinges extensively on future projections and earnings forecasts, with comparatively less weight assigned to historical outcomes. This environment can foster a tendency for public executives to manipulate earnings, particularly considering the link between executive compensation and financial performance. Consequently, the pursuit of maximizing reported earnings often becomes a central aim for these companies.

On Wall Street, conservative accounting practices might not receive the same level of appreciation due to shareholders’ preference for consistent and steady growth. As a result, executives often engage in practices that smooth out earnings over time. While the surface-level financial performance of a public company may appear stable, it’s crucial to delve deeper to uncover any underlying issues that may necessitate a more thorough analysis.

Private Companies: For most private enterprises, the primary objective for owners is to minimize earnings for tax-related reasons. Owners are inclined to mitigate substantial tax payments and therefore resort to various strategies, such as extensive deductions and sophisticated tactics. When valuing a private company, it’s imperative to recalibrate or normalize the financial statements to arrive at the genuine earnings of the company.

Geography

Public Companies: The evaluation of a public company’s value necessitates a keen consideration of globalization’s impact. In today’s interconnected world economies, the interdependence is vividly evident as approximately 29% of S&P 500 companies’ revenue stems from foreign operations. International trends hold sway over the value of these public entities, demanding at least a foundational grasp of the repercussions of a global footprint in the valuation process. For instance, the hypothetical scenario of China prohibiting iPhone sales could reverberate throughout Apple’s earnings, while Nike’s entry into a new foreign market might similarly influence its profitability. Moreover, shifts in currency exchange rates can hold profound implications for valuation. Consumer preferences, ever-changing and influential, can significantly sway valuation outcomes. Accurately predicting these dynamics, particularly in foreign markets, is complex but profoundly impactful. Hence, appreciating the ramifications of global operations is a pivotal aspect when assessing the value of a public company.

Private Companies: The majority of private enterprises predominantly function on a local or regional scale, with international reach being a rarity. For these private entities, alterations in international trade typically exert minimal influence, often translating into cost adjustments for raw materials or supplies. While an understanding of global business is of lesser significance in the valuation of private companies, it takes on greater relevance if the company maintains foreign operations.

Valuation Methods

Public Companies: Comparing public companies is a more straightforward process due to the requirement of audited financial statements. While there’s still a degree of subjectivity within GAAP, the financial statements of public firms generally offer greater reliability and consistency compared to their private counterparts. This enhances the feasibility of conducting a comparable company analysis, a widely used valuation method. Adjustments or normalizations to financial statements are less necessary for public companies, streamlining the comparison process.

The accessibility of information further aids in analyzing similar companies. Public firms are obligated to disclose information regularly to the public, which is readily available for anyone interested. These factors collectively simplify peer-to-peer comparisons, bolstering the reliability of the market approach for public companies.

Valuation techniques for public companies also tend to be more intricate compared to those for private entities. The Discounted Cash Flow (DCF) method, for instance, is more frequently employed for public companies. DCF heavily relies on projections, which are usually more feasible to generate for public firms. Regular projection preparation is expected from public companies, aligning with investor expectations.
Overall, valuation techniques for public and private firms exhibit distinctions. DCF and comparable transaction analysis are more prevalent for public company valuations.

Private Companies: The scarcity of comparable transactions poses challenges when valuing private firms using the market approach. Owners of private entities aren’t obligated to disclose transaction terms publicly, and information about private transactions remains limited. Reporting transaction details could put buyers at a disadvantage, potentially driving other sellers to seek higher prices. This often leads to downplaying the actual transaction terms. If transaction information is disclosed, the subject company’s identity is typically concealed, making verification nearly impossible.

The interpretation of data in private transaction databases also introduces a notable element of subjectivity. For instance, when contributors submit transaction details, clarifications are needed—does “EBITDA” refer to standard EBITDA or adjusted EBITDA? Situations can arise where a company utilizes a Section 179 deduction to expense a significant equipment purchase, avoiding depreciation. In such cases, the question arises: should this be factored into EBITDA calculations?

While these guidelines might be communicated to contributors, the reliability of databases greatly hinges on the diligence, expertise, and integrity of data submitters. A similar principle applies to public company transaction data, albeit with more seasoned professionals involved in larger transactions, leading to greater consistency in standards and a willingness to challenge inaccuracies. The scarcity of comparable information compounds the challenge of conducting comparative analysis for private company valuation.

The valuation process for private firms necessitates adjustments or normalization of financial statements, involving a degree of subjectivity. Furthermore, private company owners are not mandated to subject their financial statements to auditing, resulting in wider variations in accounting practices, particularly among smaller enterprises.

In the realm of private company valuation methods, there’s a clear frontrunner: earnings multiples. In acquisition discussions, the language invariably revolves around multiples. Among these, the most prevalent approach to valuing private companies is using a multiple of EBITDA. Comparatively, the employment of Discounted Cash Flow (DCF) is less common in private company valuations.

Analysis of the overall factors that influence the sub-factors in the valuation of publicly held companies
FactorTime HorizonIncreases ComplexityMore Information
Time Horizon
People & Stakeholders
Securities
Sophistication
Incentives
Speculation
Emotions
Information
Constant Pricing
Economic Variables
Control
Expectations
Rumors
Regulation
Complexity
Financial Statements
Geography
Valuation Methods

Summary

To sum it up, the various factors mentioned can be simplified into the following overarching points:

  • Time Horizon: Public company investors typically have a shorter time horizon compared to private company investors.
  • Complexity: Investments in public companies involve more intricacies compared to those in private companies.
  • Information Availability: There is greater access to information about public companies as opposed to private ones.
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