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Chapter 10

1.2 Quoted and unquoted companies

When valuing a quoted company, the current stock market share price should be
used as a starting point for the calculations – but not necessarily a definitive final
figure – consider that a buyer will often have to pay a premium.

When valuing an unquoted company, estimates often have to be made, based on
available information taken from similar quoted companies (‘proxy’ companies). In
practice, it can be difficult to find a similar quoted company.

1.3 Overview of basic valuation methods

Three basic valuation methods:

Asset based Earnings based Cash flow based
valuation valuation valuation

The business's assets The projected earnings In theory, a business's
form the basis for the for a business will give value should be equal
valuation. an indication of the to the present value of
value of that business. its future cash flows,
Asset based valuation For example, a business discounted at an
methods are difficult to with high forecasted appropriate cost of
apply to businesses earnings will be capital.
with high levels of attractive to a potential

intangible assets. purchaser, and hence
will be valued highly.

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