We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is a Private Equity Valuation?

Jim B.
By
Updated May 17, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Private equity valuation is the process by which a private investor attempts to determine the value of a company in which he potentially could invest. This process usually requires a detailed analysis of the business operations of a company over a period of several years along with a projection on that company's future potential. Investors will use a private equity valuation as a technique to determine if they should attempt a leveraged buyout of a private company. There are many methods available for valuation, ranging from analysis of earnings reports to an in-depth examination of every aspect of the company's operations.

Investments on companies can come on the open market, which is when investors buy shares of stock in a company and hope that the share price rises in accordance with the company's fortunes. Other investments come in companies that are privately owned and may be in need of capital to either improve their business or to simply survive. This requires an investor known as a private equity investor, a wealthy individual of group who seeks to gain a controlling share of the company or even own it outright. A private equity valuation of the company can determine whether the company is a good investment vehicle and how much the investor is willing to pay.

When making a private equity valuation, investors should do so with their ultimate goals in mind. For instance, an investor wishing to have a passive role in the company and simply make money when it is resold may have different questions he needs answered by a valuation than someone wishing to take an active role in the company. The company's potential also needs to be considered, especially if investors one day wish to take the company public via an initial public offering.

One of the goals in performing a private equity valuation is determining the fair market value of the company. This value is the price that should be paid for the company if there was no pressure on the company to sell or no excess motivation on the investor to buy. With the motives removed from the equation, the fair market value is the benchmark from which negotiations can begin.

Earnings reports are the most simplistic method of private equity valuation, as long as they can be projected into future years with some degree of certainty. Other investors may concentrate on the value of the assets a company currently has and weigh that against its liabilities. Valuation may also take the form of subjective analysis, such as where the company stands in terms of its market competition, how strong is the management team, and other factors that can't be boiled down to mere numbers and statistics.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Jim B.
By Jim B.
Freelance writer - Jim Beviglia has made a name for himself by writing for national publications and creating his own successful blog. His passion led to a popular book series, which has gained the attention of fans worldwide. With a background in journalism, Beviglia brings his love for storytelling to his writing career where he engages readers with his unique insights.
Discussion Comments
Jim B.
Jim B.
Freelance writer - Jim Beviglia has made a name for himself by writing for national publications and creating his own...
Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.