- CFA Exams
- 2025 Level II
- Topic 5. Equity Valuation
- Learning Module 25. 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.
Company-Specific Factors
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).
Stock-Specific Factors
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.
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