What is the Current Value Method?
In some cases, analysts estimate the value of a stake in a private company simply by determining what it is worth today. Because ASC 820 emphasizes that the value of a stake be justified with an eye to the value of the company at exit, this approach can only be used in some situations—chiefly, these are:
- If the company is likely to exit in the immediate future
- If the company is so early-stage that there is no reasonable way to estimate the likelihood of future exits
Under the Current Value Method, an analyst will simply take the enterprise value of the company and distribute it to the company’s debt and equity holders according to their rights and preferences without factoring in any additional adjustments for risk, volatility, or likelihood of various exit scenarios.