CIMA F3 Syllabus D. Business valuation - Share prices (quoted and non-quoted entities) - Notes 8 / 15
Valuation of quoted or unquoted company
Quoted companies
A quoted (listed) company will have a current stock market value also known as its market capitalisation.
Where small holdings of shares are being traded, this is the relevant price for the transaction.
However, if one company is looking to purchase another by buying shares, this value will not give a suitable price because the current shareholders will not have any extra incentive to sell their holdings at the current market price.
As a result a premium to the existing market price is normally offered.
Unquoted companies
Since an unquoted company has no stock market price determining a valuation may be more difficult.
There is likely to be less available information to help a potential purchaser assess the value of the company.
Typically this process will involve using a similar quoted company (proxy company).
The techniques we are now going to cover produce a range of values which can be summarised as follows:
