While the Kroll Cost of Capital Navigator continues to be widely used and accepted for estimating cost of equity (COE), BVR’s Cost of Capital Professional has been gaining considerable steam since its launch in 2018, according to a BVR survey. Some other resources for estimating the cost of capital have also seen an uptick in usage.
Pecking order: A question in the Business Valuation Firm Benchmarking Guide, 2023 Edition, asked: “Which of the Following Resources Do You Use to Estimate the Cost of Capital? (check all that apply.)” Kroll’s Navigator topped the list, at 74%, and the Cost of Capital Professional followed, at 35% (see table). The survey was conducted during May 2023-July 2023 and had 192 respondents.
| 2023 | 2018 | 2016 | |
| Kroll (Duff & Phelps) Cost of Capital Navigator | 74% | 75% | 84% |
| BVR's Cost of Capital Professional | 35% | n/a | n/a |
| Pepperdine Private Capital Markets Study | 26% | 21% | 12% |
| Damodaran's cost of capital data | 25% | 23% | 33% |
| Kroll (Duff & Phelps) SBBI Yearbook | 23% | 55% | 37% |
| Other | 8% | 4% | 9% |
The 2018 BVR survey was done before the launch of the Cost of Capital Professional, but there have been other surveys since then. Jim Hitchner (Financial Valuation Advisors Inc.) has done regular surveys since 2019, finding that the Navigator has an 88% average usage rate versus 22% for the Cost of Capital Professional (click here for coverage). In the current BVR survey, the use of the Pepperdine studies and Damodaran’s data saw slight increases in usage, while the SBBI Yearbook showed a marked decline. Of course, all surveys have different sizes, demographics, and populations.
More steam? Given the recent hefty price increase for the Navigator, we would expect that the usage gap between the Navigator and the Cost of Capital Professional will continue to narrow. Also, more practitioners may look to the Pepperdine and Damodaran sources, which are free or of minimal cost. And, of course, this all depends on the level of price elasticity in the marketplace.
In any event, the Cost of Capital Professional has emerged as an effective lower-cost alternative for practitioners who do not need all the features the Navigator provides. Also, the two platforms (as well as the Pepperdine studies) produce “very close” results, according to tests Hitchner made. The question of “which source is best” is up to users to decide. The surveys show that some practitioners use several sources and compare the results, which is a welcome option for a process that is not perfect.