CFA Level II Exam · Private Company Valuation

Valuation Level of Value and Reconciliation for Private Companies

Updated 7 October 2026 · Fact-checked

Levels of value describe what ownership interest a value applies to: control, marketable minority, or non-marketable minority. You start at the level your method produces, then adjust with premiums or discounts to reach the level the question needs. Reconciliation then weights the approach results into one final value.

Understand Valuation Level of Value and Reconciliation

A value is only meaningful if you know which ownership interest it describes. A 5% stake in a private firm is worth less per share than a 100% stake, even if the company is the same. Levels of value make that difference explicit.

There are three levels in the chain of value. Control value is the value of a firm when the owner can direct its policies, such as strategy, dividends and sale. Marketable minority value is the value of a non-controlling stake that could be sold quickly, like a stake in a listed company. Non-marketable minority value is the value of a non-controlling stake that cannot be sold easily, which is typical of a minority stake in a private firm.

Each approach lands at a particular level. In the income approach, the level depends on both the cash flows and the discount rate. Cash flows based on current management and policies, discounted at a rate taken from public market data, give a marketable minority value. If the cash flows are adjusted to reflect control (for example improved management or changed policies), the value is a control value. A discount rate that includes an allowance for illiquidity pushes the result toward a non-marketable value. Guideline public company multiples give a marketable minority value, because listed share prices are minority and liquid. Guideline transaction multiples usually reflect control, since the deals were purchases of whole companies or controlling stakes. Asset-based values depend on the basis of the assets and need judgement about the level.

To move along the chain, you apply a discount for lack of control (DLOC) or a premium for control (DOC), and a discount for lack of marketability (DLOM). Order matters. DLOC and DOC link control and marketable minority values. DLOM links marketable minority to non-marketable minority.

Reconciliation comes after the approaches are all on the same level. You assign weights to each result based on how reliable the data and method are for this company, then take the weighted average. Weights are a judgement. They are not fixed by a rule.

Key formulas to remember

Control premium from discount for lack of control: DLOC = 1 − [1 ÷ (1 + control premium)]; Use when the question gives a control premium and asks for the equivalent minority discount.
Control premium from DLOC: Control premium = [1 ÷ (1 − DLOC)] − 1; The inverse of the formula above. The premium is always larger than the discount in percentage terms.
Control to marketable minority: Marketable minority value = Control value × (1 − DLOC); Valid when DLOC is expressed as a percentage of control value.
Marketable minority to non-marketable minority: Non-marketable minority value = Marketable minority value × (1 − DLOM); DLOM is applied to the marketable minority value, not to the control value.
Chain of value: Control → (− DLOC) → Marketable minority → (− DLOM) → Non-marketable minority; Moving down the chain, apply discounts. Moving up, reverse them.
Combined discount: Total discount = 1 − [(1 − DLOC) × (1 − DLOM)]; Discounts are multiplied, not added.
Reconciled value: Final value = Σ (weight × approach value); Weights must sum to 100%, and all values must be at the same level of value first.

How to solve Valuation Level of Value and Reconciliation questions

Use this order for any levels-of-value or reconciliation question in an item set.

1Identify the interest being valued in the vignette: control, marketable minority, or non-marketable minority.
2For each approach in the exhibit, decide which level it produces. Income approach with current policies and guideline public multiples give marketable minority. Guideline transactions usually give control.
3Find the discounts or premiums given: DLOC, control premium, DLOM. Check whether a premium or a discount is stated, and what it is a percentage of.
4Move each value along the chain to the target level, applying DLOC or premium first and DLOM only when going to non-marketable minority.
5Convert premium to discount, or the reverse, if the data are given in the other form.
6Put all values on the same level, then apply the weights. Confirm the weights sum to 100%.
7Compute the weighted value and check it falls between the lowest and highest approach values.
8Read the question again to confirm the level asked for, then pick the option.

Quickest way: Level first, then adjust, then weight

When to use it: Use when the item set gives two or three approach values and asks for a final value for a stated interest.

Write the target level at the top of your scratch area.
Next to each value, write the level it represents.
Adjust only the values that differ from the target, using multiplication by (1 − discount).
Weighted average the adjusted values.
Sanity check: a non-marketable minority value should be lower than a marketable minority value for the same firm.

Common mistakes in Valuation Level of Value and Reconciliation

Adding DLOC and DLOM together to get a total discount.
Discounts look like simple percentages, so students sum them.
Fix: Multiply the two (1 − discount) factors. Total discount = 1 − (1 − DLOC)(1 − DLOM).
Treating a control premium and the equivalent DLOC as the same number.
Both describe the gap between control and minority value.
Fix: They have different bases. A 25% premium equals a DLOC of 1 − 1/1.25 = 20%. Convert with the formulas.
Applying DLOM to a control value directly.
Students forget the chain has an order.
Fix: Go control to marketable minority with DLOC first. Apply DLOM only to a marketable minority value.
Averaging approach values before putting them on the same level.
Students rush to the weighted average.
Fix: Label the level of each value first. Adjust, then weight.
Assuming guideline transaction multiples always give a minority value.
They are market-based like public multiples.
Fix: Transaction multiples reflect purchases of control in most cases, so they give a control value unless the vignette says otherwise.
Believing there is a standard set of weights for reconciliation.
Students look for a formula.
Fix: Weights come from judgement about data quality and method fit, and the vignette will give or imply them. Use what is given.

Worked examples

Example 1

Vignette: An analyst values Harbor Foods, a private firm. A discounted cash flow model uses current management policies and a discount rate derived from public market data. It gives an equity value of €80.0 million. The analyst needs the value of a non-controlling interest and applies a discount for lack of marketability of 20%. Question 1: What level of value does the DCF result represent? Question 2: What is the value of the equity on a non-marketable minority basis, as it applies to a non-controlling interest?

Show the solution

The DCF uses current policies and a discount rate from public market data, so it reflects a marketable minority value.
The DLOM is applied to a marketable minority value to reach non-marketable minority value.
Non-marketable minority value = 80.0 × (1 − 0.20) = 64.0 million.

Answer: Q1: Marketable minority value. Q2: €64.0 million, the non-marketable minority value that applies to a non-controlling interest.

Example 2

Vignette: Delta Plastics is private. A guideline transaction method gives a control value of $120 million. A guideline public company method gives a marketable minority value of $90 million. The analyst assigns weights of 40% to the transaction method and 60% to the public company method. The estimated control premium is 25%, and the DLOM is 10%. Question 1: What is the DLOC implied by the control premium? Question 2: What is the reconciled marketable minority value? Question 3: What is the non-marketable minority value?

Show the solution

DLOC = 1 − 1/1.25 = 1 − 0.80 = 20%.
Convert the control value to marketable minority: 120 × (1 − 0.20) = 96 million.
Weighted marketable minority value = 0.40 × 96 + 0.60 × 90 = 38.4 + 54.0 = 92.4 million.
Non-marketable minority value = 92.4 × (1 − 0.10) = 83.16 million.

Answer: Q1: 20%. Q2: $92.4 million. Q3: $83.16 million.

Exam tips

Always write the level of value beside each number in the exhibit before doing any arithmetic.
Check whether the vignette states a premium or a discount, and convert if needed. Examiners use both forms.
Expect a distractor that adds discounts or applies DLOM to control value. Follow the chain order.
A reconciled value must sit between the lowest and highest adjusted approach values. Use this to reject wrong options.
If the vignette gives weights, use them as stated. If it asks you to justify weights, link them to data quality and method fit.

Valuation Level of Value and Reconciliation: frequently asked questions

What are the three levels of value in the chain of value?

They are control value, marketable minority value and non-marketable minority value. You move from control to marketable minority by applying a discount for lack of control. You move to non-marketable minority by applying a discount for lack of marketability.

What is the difference between marketable minority and non-marketable minority value?

Both describe a stake without control. A marketable minority stake can be sold quickly, like a listed share. A non-marketable minority stake cannot, so it carries a discount for lack of marketability.

How do I reconcile different valuation approaches for a private company?

First put every approach result at the same level of value. Then assign weights based on how reliable each approach is for the company, and compute the weighted average. The weights are a matter of judgement unless the vignette gives them.

How do I convert a control premium into a discount for lack of control?

Use DLOC = 1 − 1 ÷ (1 + control premium). For example, a 25% control premium gives a DLOC of 20%. The discount is smaller than the premium because it applies to the larger control value.