Home Stocks Decoding The Valuation Report Process

Decoding The Valuation Report Process

When you purchase through our sponsored links, we may earn a commission. By using this website you agree to our T&Cs.

In the aftermath of Dodd-Frank’s implementation, all registered private equity firms received letters from the Securities and Exchange Commission introducing the SEC’s Presence Exams. These exams, designed to engage, examine and report on areas of risk, largely focused on marketing claims, portfolio-management practices, and valuation methodologies. Two years later, in 2014, the SEC director assessed that over half of the completed exams uncovered compliance issues. It should come as no surprise, then, that these areas are attracting increased scrutiny from both regulators and LPs.

Consequently, most GPs have spent considerable time formulating robust valuation policies to facilitate consistency and transparency. Just as important are the actual valuation reports that execute upon the stated policies and track the specific inputs and considerations that feed into each fair-value assessment.

Typical elements of a valuation report should include the discussion of enterprise milestones, the identification of competitors with an industry outlook and the reconciliation of past with prospective financial performance. Whether employing a market or income approach, the factors that give CFOs the biggest headaches lie in those areas that are also the most subjective—supporting forecast assumptions, selecting market multiples, or developing risk-adjusted discount rates. The subjective nature of valuing Level 3 assets underlines the importance of a comprehensive and well-organized valuation report. Any solid valuation framework should include the cooperation of concerned parties to limit conflicts of interest and personal biases often present when making complex financial decisions.

By Jordan Barnett, Director, Murray Devine

To learn about Murray Devine’s focused and reliable approach, read more here.

This article represents the author’s views only and doesn’t necessarily represent the views of PitchBook.

Article by PitchBook

Our Editorial Standards

At ValueWalk, we’re committed to providing accurate, research-backed information. Our editors go above and beyond to ensure our content is trustworthy and transparent.

Want Financial Guidance Sent Straight to You?

  • Pop your email in the box, and you'll receive bi-weekly emails from ValueWalk.
  • We never send spam — only the latest financial news and guides to help you take charge of your financial future.