Comparable Transactions Method vs Guideline Transactions Method

CFA Level II
#1

Getting delirious, is there a difference between the two?

#2

When valuing closely held companies, if you decide to use comparable method, there are 3 variations to do it:

  1. Guideline Public Method: minority perspective, need to add premium if you control

  2. Guideline Transaction Method: control perspective, no need to add premium

  3. Prior Transaction Method: miniority perspective, compared to previous share sales

#3

cool, thanks!

#4

No problem ;p

#5

This is kind of confusing, b/c it’s presented differently than the chart on page 256. Remember, GTM is based on control, and GPCM is NOT. So if you don’t have control, you would need to apply a DLOC to GTM, and nothing to GPCM. BUT, if you do have control, you would NOT need to add a premium to GTM, but you WOULD need to add a premium to GPCM.

And in answer to your thread question, the guideline transaction chapter in equity is based on valuing a private or closely held company. The comparable transaction approach is one of the 3 main methods of valuing any company, including public companies.

#6

Crap, are you sure you apply a DLOC to GTM (when valuing a minority interest) even if they don’t tell you specifically to take a discount for control? The obvious one is yes, adding a CP to GCM when valuing a control. But do you ALWAYS take a DLOC when valuing minority interest under GTM? Schweser doesn’t say this, does CFAI say?

#7

Look in the cfa text. I would just read those two pages if you’re confused on this. But, in answer to your question, I would say YES. A transaction ( in this context ) is almost ALWAYS going to be for control. In that case, if you are valuing a minority interest, you need a DLOC.

I think on the exam, it’ll be clear that if you’re looking at a transaction, it is for a controlling stake.