Valuation of Unlisted Direct Investment Equity by Emmanuel Kumah; Jannick Damgaard; Thomas Elkjaer

Valuation of Unlisted Direct Investment Equity by Emmanuel Kumah; Jannick Damgaard; Thomas Elkjaer

Author:Emmanuel Kumah; Jannick Damgaard; Thomas Elkjaer
Language: eng
Format: epub
ISBN: 9781452776293
Publisher: International Monetary Fund
Published: 2009-08-15T00:00:00+00:00


(B) Net Asset Value

According to this method, fair value of unlisted equity can be estimated as total assets at current value minus total liabilities (excluding equity) at market value. The appraisals can either be performed by knowledgeable management or independent auditors. The BPM6 directly mentions that intangible assets should be covered, but the OECD Benchmark Definition of Foreign Direct Investment, 4th Edition (BD4, paragraph 524) recognizes that it is often very difficult to estimate the value of these assets, and they may thus be excluded.41 Finally, the appraisals have to have been conducted within the last year.

The advantage of this method is that knowledgeable management and independent appraisers, who are close to the company, often have superior knowledge about the actual value of a company. They may even know how much potential buyers are willing to pay for the company, which would be a direct approximation of market value. Unlike macro- approach methods, this valuation technique also takes specific company details into account.

Nevertheless, the method has some weaknesses. Since the valuation is left to reporters, compilers do not exactly know how much effort company officials put into the valuation process or if it is done consistently across companies. Moreover, some companies may have an interest in providing incorrect values for reasons such as tax evasion, shareholder protection, fear that competitors will obtain the information, etc. The risk for misinterpretation of market value and the existence of potential protectionist incentives may lead to a mix of accurate and inaccurate data.



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