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Company Valuation. How to Deal with a Range of Values?

Author

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  • Wiktor Patena

    (Wy¿sza Szko³a Biznesu – National Louis University)

Abstract

Company valuation is not done after having generated a few values being a result of applying different valuation methods. In many cases institutions ordering the valuation request a value which can be an equivalent of a market, transactional value. Often the one method (and the valuation resulting from the method) can be indicated, since the valuer claims that it gives the most precise value of the company. However, it is safer to consider the range of values and then try to determine the final value which is the result of a combination of several methods. However, the question is how to consistently deal with a range of values. One of the solutions are so-called mixed methods of company valuation. They are criticized in this paper as they are too subjective. Instead we suggest considering a portfolio approach – PATEV (Portfolio Approach to Equity Valuation). In addition to having to choose a method of defining one value, the value is subject to further corrections: liquidity and control discounts.

Suggested Citation

  • Wiktor Patena, 2011. "Company Valuation. How to Deal with a Range of Values?," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 7(3), pages 75-84, November.
    • Handle: RePEc:rze:efinan:v:7:y:2011:i:3:p:75-84
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    File URL: http://www.e-finanse.com/artykuly_eng/192.pdf
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    References listed on IDEAS

    as
    1. Fernandez, Pablo, 2005. "Financial literature about discounted cash flow valuation," IESE Research Papers D/606, IESE Business School.
    2. Pablo Fernández & Andrada Bilan, 2013. "110 Common Errors in Company Valuations," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 33-78.
    3. John Koeplin & Atulya Sarin & Alan C. Shapiro, 2000. "The Private Company Discount," Journal of Applied Corporate Finance, Morgan Stanley, vol. 12(4), pages 94-101, January.
    4. Fernandez, Pablo, 2002. "Valuation Methods and Shareholder Value Creation," Elsevier Monographs, Elsevier, edition 1, number 9780122538414.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Byrka-Kita Katarzyna & Grudziński Michał, 2017. "Control Premium and Minority Discounts in Polish Business Valuation Practices – Evidence from Research," Financial Internet Quarterly (formerly e-Finanse), Sciendo, vol. 13(1), pages 1-14, November.

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    More about this item

    Keywords

    company valuation; range of values; liquidity discounts;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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