How Much Is This Company Worth

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As investors, we typically determine the value of a company based on a combination of factors.
These include, but are not limited to, financial performance, growth prospects, economic conditions and overall market sentiments.
However, it is not an exact science. Ultimately, the exact value of a company is the price someone is willing to pay for it.
Retail investors have traditionally seen the stock market as the only way to invest in companies. Their objective is to generate returns on their capital as opposed to placing available funds in fixed deposits or savings accounts.
After all, share prices move in real time based on the forces of supply and demand, and this gives the investor some degree of comfort that the quoted share prices reflect the public’s view of the company’s valuation.
However, some retail investors are now seriously looking at private companies in the hope of getting higher returns on their capital.
Such investment opportunities are available through a few channels — angel investment networks, equity crowdfunding platforms, peer-to-peer financing platforms and start-up networking events.
For instance, more than RM275 million has already been raised on pitchIN, a crowdfunding platform based in Malaysia, according to fintechnews.my.
Ads by KioskedBut determining the value of a private company comes with challenges. Unlike public-listed companies where detailed information on earnings or profits and losses is publicly available, similar information on private companies is rarely there to help potential investors carry out a full-fledged valuation.
However, there are a few simple ways to determine if a private company’s valuation is sensible.
Comparable company analysis: look at the financial performance and valuation of similar public companies that operate in the same industry and have similar business models. By comparing key financial metrics such as revenue, earnings, and market share, you can estimate the valuation of the private company. For example, take the share price to earnings ratio of a comparable public company, and apply a similar ratio to the private company’s earnings to determine its share price and valuation.Market transaction analysis: look at the prices that other private companies in the same industry have recently sold for, and use these prices as a benchmark for the valuation of the private company.Asset-based valuation: calculate the value of the private company’s assets, such as property, equipment, inventory, and intellectual property, and subtract any liabilities to arrive at the net asset value of the company.It is important for a retail investor to consider all the risks associated with investing in a private company.
A private company’s shares cannot be easily sold unless there is a willing buyer at a given time.
There is a lack of transparency given that private companies are not legally obliged to share detailed information.
They are also unlikely to be as well-established as public companies, making them an investment that carries a higher risk.
Ads by KioskedNonetheless, industry experts believe the trend of retail investors seeking investment opportunities in private companies will continue. - FMT
The views expressed are those of the writer and do not necessarily reflect those of MMKtT.

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