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CFA Level I · CFA Level I Exam · Investments in Private Capital: Equity and Debt

When valuing a private company using the market approach, an analyst applies an EV/EBITDA multiple from listed peers. The analyst would most likely adjust the resulting value to reflect:

The analyst would most likely apply a discount for lack of marketability. Private company shares are illiquid compared with listed peers, so a value derived from public multiples is normally reduced to reflect the difficulty of selling the shares.

  1. Aa discount for lack of marketability of the private sharesCorrect
  2. Ba premium because private companies report less frequently
  3. Ca lower enterprise value because peers hold more debt

Explanation

Private shares cannot be sold easily, so a discount for lack of marketability is commonly applied to peer-derived values. Infrequent reporting does not justify a premium, and peer debt levels are already handled in an enterprise value multiple.

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