Contrast the key features of private and public companies that matter for valuation

Private companies differ from public ones in company-specific and share-specific ways. Company-specific differences include an earlier stage of life, smaller size, less depth of management, owners who are also managers, lower-quality or unaudited financial information, freedom from short-term market pressure, and often a focus on minimising tax rather than reporting profit. Share-specific differences include illiquidity, since there is no active market, restrictions on transfer, and concentrated ownership, which makes control an important issue. These features tend to raise required returns and call for valuation discounts. The trap is applying a public company's multiple or discount rate directly to a private business without adjusting for size, liquidity and the quality of the information.