and its Application to Enterprise Valuation The value of a firm must equal the value of the claims on its assets. In practice, this is generally expressed as the value FIRM = value DEBT + value EQUITY. Similarly, in a balance sheet prepared in accordance with generally accepted accounting principles (GAAP), assets = liabilities and equity. By comparison, an economic balance sheet is constructed using market values rather than amounts reported in accordance with GAAP, items included are classified as operating, non-operating, debt or equity-related rather than current or long-term, asset or liability, and it includes economic assets and liabilities…
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This blog discusses the four-step process for providing fair value marks for venture capital fund investments in pre-public companies: 1) examining the most recent financing round economics, 2) adjusting valuation inputs to the measurement date, 3) measuring fair value, and 4) reconciling and testing for reasonableness. Sujan Rajbhandary, vice president in Mercer Capital’s Financial Reporting Valuation Group, discusses each step in the process including the option pricing method (OPM) and the probability-weighted expected return method (PWERM). Find out more in the Mercer Capital’s Financial Reporting article, How to Value Venture Capital Portfolio Investments. This article is republished from Mercer Capital’s…