Valuing Private Firms

So far this book has concentrated on the valuation of publicly traded firms. In this chapter, we turn our attention to the thousands of firms that are private businesses. These businesses range in size from small family businesses to some that rival large publicly traded firms in revenues and profitability. The principles of valuation remain the same, but there are estimation problems that are unique to private businesses. The information available for valuation tends to be much more limited in terms of both history and depth, since private firms are often not governed by the standardized accounting and reporting standards of publicly traded firms. In addition, the standard techniques for estimating risk parameters such as beta and standard....