Comparative Approach and Risk Factors in Business Valuation of Shares in Non-Public Companies
Abstract
Introduction. This study examines the methodological considerations involved in applying the comparative approach and incorporating risk factors when assessing shares in the capital of non-public companies. The lack of open market information significantly complicates the objective assessment of the value of such companies, particularly in the Bulgarian market.
Aim and tasks. This study aims to derive the value of a share of a non-public company by comparing it with public companies and making necessary adjustments with a discount for size and specific risk.
Results. This study applies a comparative approach to the valuation of companies listed on the Bulgarian capital market based on economic indicators for 2021-2023. The value of a company's share was determined based on financial multiples (IC/RI, IC/EVA, ROE, etc.) and a comparative approach, with adjustments for uncontrollability, liquidity, company size, and specific risks. Based on the calculated multiples, companies with higher profitability and efficiency indicators (ROE, ROA, and ROIC) demonstrated better financial stability and competitiveness. For example, ROE values ranged from 0.09 to 0.84, ROA from -0.013 to 0.28, and ROIC from 0.008 to 0.64, with the best performers showing consistently positive results. In contrast, companies with poor or negative performance across most ratios may face higher risk exposure and ineffective management. This is evidenced by extremely low or negative values for IC/RI (–68.99 to 14.42) and IC/EVA (–1,066.39 to 20.11), reflecting inefficient capital allocation and weak value creation. Negative ROA (–0.012) and low ROIC (0.008 to 0.039) suggest potential operational inefficiencies.
Conclusions. The comparative approach to business valuation enables the estimation of the value of a privately held (closed-type) company by applying appropriate adjustments to the financial data of comparable publicly traded (open-type) companies. This study proposes an algorithm for determining a company’s share when considering controlling/non-controlling, the degree of liquidity of a block of shares, size, and specific risk through a comparative valuation approach. Applying such an algorithm in valuation practice is primarily based on the valuer’s professional experience. It can be advantageously used when valuing privately held companies.
Keywords:
comparative approach, share value, non-public company, business valuation, minority interest.References
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