Question

Hi There, we are working on a group assignment for a course called Corporate Valuation and we have a small problem. I was wondering you could help out.

the question:
We need to calculate the value of a private company using the DCF methods. We have the balance sheet, income statement and, a forecast of the sales and expenses for the operating assets. However, the company we are valuing also has a minority stake in companies from similar industry but we do know any information on these companies besides what we received from those minority investments. How should we value the minority stake?

Answer 1

If you have the balance sheet you should have the stated value of that minority stake. It's probably the most appropriate to use that given the information you have. Especially if this is the market value of that stake.

Answer 2

You can also use the implied P/B multiple derived from DCF and apply it to book value of minority interest in companies found on balance sheet.

let's say that you calculated from DCF that equity value (100%) is 100 CU, and deduct from the balance sheet that book value of equity is 50 CU. Then P/B is 2:1... Multiply the investment by 2 and that's the value you add to DCF to value the Group.

Answer 3

Thanks a lot for your responses!! However, I do not know what CU and B/P actually mean. Could you explain what you mean with that! Thanks in advance!

Answer 4

do valuation ignoring minority stake and add the balance sheet value of minority stake to value arrived by DCF

Answer 5

CU is short for currency unit, instead of specifying EUR or USD. P/B is a ratio of market value of equity (price) and accounting equity reported in latest available balance sheet (book).