Marketable Securities

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Investors in publicly-traded companies have the luxury of knowing the value of their investment at virtually any time. An internet connection and a few clicks of a mouse are all its takes to get an up-to-date stock quote. Investors in privately-held companies do not have such a readily available value for their ownership interests. How are values of privately-held businesses determined, then? Each month, this eight blog series will answer that question by examining a key component of how ownership interests in privately-held companies are valued.

If you would like to download our full e-book, which includes all of the blogs in this series, you can do so here. Before a final conclusion of value can be rendered, the identify the difference between liquidity and marketability analysis of the ownership interest being valued must be considered. The value of an ownership interest is influenced by many of its characteristics, including marketability and control, which can have a meaningful impact on the concluded value of an ownership interest.

Control — Whether or not the ownership interest being valued has control over the subject company can have a meaningful impact on its value. Controlling owners have the ability to:. The ownership of a non-controlling interest in a company does not have the ability to unilaterally direct the items above, which generally makes it less valuable than a controlling ownership interest.

The impact of identify the difference between liquidity and marketability analysis of control on the value of an ownership interest is typically reflected in one of two ways:.

Marketability — There are certain marketability differences between an ownership interest in a privately-held company and an ownership interest in the stock of a publicly-traded company. This would not be the case with an ownership interest in a privately-held company.

Consequently, liquidating a position in a privately-held company is a more costly, uncertain and time-consuming process than selling the stock of a publicly-traded entity. An investment in which the owner can achieve liquidity in a timely fashion is worth more than identify the difference between liquidity and marketability analysis investment in which the owner cannot sell the investment quickly.

Privately-held companies sell at a discount that reflects the additional costs, increased uncertainty and longer time commitments associated with selling these types of investments. Therefore, the consideration of discounts for lack of control and lack of marketability are important in any valuation analysis, particularly those involving non-controlling ownership interests in privately-held companies.

For more information on the topics covered in this blog, contact Sean Saari at ssaari skodaminotti. Follow any comments here with the RSS feed for this post. Comments are closed, but you can leave a trackback:

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