Some thoughts on the small stock premium
The small stock premium is the concept of increasing the discount rate, to make specific allowance for the relative size of the entity being valued, by reference to size data from the public markets.
This has become deeply embedded in parts of the business valuation community. This is notably the case in North America. The reasons are clear: the USA is the source of most of the small cap studies; it is also an environment in which computation is generally preferred over qualitative methods.
The UK is far from immune from this thought process; it appeared in the two cases of Gul Bottlers v Nichols plc and Gray v Braid Group (Holdings) Limited. In both of these cases the discount rate was increased by 11.65%, representing the premium returns experienced by the smallest listed US companies.
Continue reading
This content is not freely available. To access 'Some thoughts on the small stock premium' you need to be one of the following:
-
ACA student
-
This content is available to ACA students. If you want to start the ACA qualification there are several routes you can take
-
Business and Finance Professional
-
An internationally recognised designation and professional status from the ICAEW.
-
Forensic & Expert Witness Community
-
Essential resources, news and support for forensic accountants and expert witnesses..
-
ICAEW member
-
Gain access to world-leading information resources, guidance and local networks. 98% of the best global brands rely on ICAEW chartered accountants.
-
Valuation Community
-
Expert insights into regulatory and technical changes impacting this increasingly complex field.