“When working with private company equity security valuations, be very cognizant of the company’s financing history, especially recent (less than six months) financings,” says a new article explaining the AICPA’s updated guide on cheap stock. The article, by Rob Barnett, managing director of Valuation Research Corp. (VRC), goes on to say that you also need “sufficient understanding about the company’s current and evolving outlook with respect to its liquidity options.”
The 2013 AICPA Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation contains two valuation concepts that, although new to the updated version, are already being used in practice: a market approach known as the “backsolve method” and an income approach known as the “hybrid method."
“Each method is an extension of fundamental allocation concepts and methods, but is designed to better address specific circumstances or fact-patterns leading to a more comprehensive valuation estimate.”
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