What valuation methodologies does Preferred Return deploy?

As a full-service valuation services firm, we have the capability to deploy an array of valuation methodologies. When considering what methodology to use, amongst other things, we consider the purpose of the work, the hierarchy of facts and circumstances present, and the nature of the asset, liability, or equity considered.

However, a few examples of valuation methodologies that are regularly referred to by the AICPA and the IRS include:

Market Approach:

  • Guideline Public Comparable Companies
  • Guideline Transaction Approach (M&A)
  • Venture Guideline Financings (also known as the “Backsolve”)

Income Approach (Discounted Cash Flows)

  • Gordon Growth Terminal Value
  • Hybrid (“H”) Model Terminal Value
  • Multi-Year Exit-based model
  • Single-year exit-based model
  • Real Option Pricing
  • Probability-weighted-expected-return-model (“PWERM”)
  • Normalized Earnings

Asset Approach

  • Asset Accumulation
  • Replacement Cost New

As an additional consideration, when assessing methodologies to allocate the value to the various equity and debt holders of a private company, we consider the:

  • Current Value Method
  • Black Scholes Option Pricing Model
  • Probability Weighted Expected Return Model

Specifically for private companies, we also consider potential Discount for Lack of Marketability (“DLOM”) by consulting the IRS’ Discount for Lack of Marketability Job Aid for IRS Valuation Professionals, which includes:

  • Synthetic Put Option Analysis, and
  • Empirical Studies

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