Valuation of Small Private Firms - A review of the most common theoretical frameworks for valuing firms, applied on a small private Swedish business

Abstract

This thesis aims to provide the reader with an overview of the current issues and practices of valuing small private firms. Focusing on methods such as; Asset-, Income-, Multiple- and Real option-based approach. Thenceforth, applying said practices on an earlier cross-national acquisition of a small private Swedish firm. Utilizing the different viable models and dismissing those not feasible. Estimates of fair value at the time of purchase are made and compared to the actual transaction price, to show the variation in results of the different models. The literature supporting this thesis consists primarily of circa 35 different published books and peer-reviewed articles on the subject. The results from this paper highlight the biggest issue observed in the valuation process, the subjectivity. Regardless of the valuation method used, the possible missteps are prevalent, and the components are highly subjective. Additionally, the important issue of information deficiency to small private firms is further mentioned. Finally, emphasizing the significance of small businesses to the Swedish economy, and how this importance, in the views of the authors' is not reflected in the literature on firm valuation at universities.