Business Valuation Methods for Private Companies

Valuing a private company is harder than valuing a listed one, mainly because two of the three standard methods rely on market data that's less readily available. In practice, a credible private company valuation usually combines more than one method rather than relying on a single number.

Discounted cash flow (DCF)

DCF values the business based on its own projected cash flows, which makes it useful when a company's future performance is expected to differ meaningfully from its past, or from its peers. It requires a defensible forecast and discount rate — see the practical guide to DCF valuation for the mechanics.

Comparable companies (trading multiples)

This method values a business by applying valuation multiples (such as EV/EBITDA or EV/Revenue) observed for listed companies in the same or a similar industry. For a private company, this usually requires an illiquidity discount, since the comparable multiples are drawn from shares that trade freely and the subject company's shares do not.

Precedent transactions

This method looks at multiples paid in actual acquisitions of similar companies. It tends to reflect control premiums and deal-specific dynamics, which makes it more relevant when the valuation is being prepared in the context of an actual or potential transaction, and less relevant for a purely internal valuation.

Asset-based approaches

For asset-heavy or early-stage businesses without a stable earnings base, an asset-based approach — valuing the underlying assets and liabilities rather than future cash flows — can be more appropriate than an income or market approach. This is less common for operating businesses with an established track record.

Choosing and combining methods

In practice, a robust private company valuation typically leads with the method best suited to the company's stage and data availability, and uses at least one other method as a cross-check. A DCF and a comparable company analysis that produce similar ranges reinforce confidence in the output; a large gap is a prompt to revisit assumptions, not a result to average away mechanically.

The purpose of the valuation also shapes the approach — a valuation prepared to support a transaction is scrutinized differently than one prepared for internal planning. For a broader view of how this fits into financial analysis work in the region, see financial analyst in Kazakhstan: what businesses actually need.