Alternative Product Pricing

Unlisted Stock

Pricing Methodology: Equity

  • Most widely used pricing methodology for common equity include income approach, market-based approach, asset approach
  • Adequate pricing methodology based on current growth stage and financial status is chosen
    * For start-ups within a fund, acquisition cost is considered fair value for fixed periods.
inform of Pricing Methodology: Equity

Income Approach

Income approach: Sophisticated analysis; market-preferred approach; relatively stable pricing

inform of Pricing methodology, Pricing Formula, Factors that determine present value of future cash flow
Pricing methodology Income Approach(DCF) ← For companies that generate adequate cash flows and have strong inherent characteristics
Pricing Formula Discounted Cash Flow = ∑(Pt × Qt – Ct ) × Dt
Factors that determine present value of future cash flow
  • PriceEstimation of future price of product
  • QuantityEstimation of future sales volume (demand)
  • CostCost of goods sold, operating costs, working capital, capital expenditure, noncash expense
  • DiscountDiscount rate that accounts for business/financial risk

Market Based Approach

  • Objective valuation is possible. Limited influence of analyst's subjective views
  • Valuation based on determination of comparable companies and indexes
inform of Market Based Approach

Overview of valuation model determination

  • primary valuation approach is determined based on growth stage and company type
  • specific valuation approach is determined based on company's industry and cash flow analysis

Systematic approach is used to determine valuation model

inform of valuation model

Criteria 1: Determination of growth stage

  • Company growth stage is categorized into 4 stages based on company history, profitability, and industry growth stage
  • Valuation method appropriate for each stage is used
inform of Determination of growth stage
Category(01 years since establishment (invsetment), 02 profitability, 03 Development stage by industry, 대표적용접근법), Stage 1, Stage 2, Stage 3, Stage 4
Category Stage 1 Stage 2 Stage 3 Stage 4
01years since establishment (invsetment) Less than a year Less than 3yr(Less than a year) Less than 5yr(Less than 3yr) 5yr and more (3yr and more)
02profitability operating profit(-),
operating cash flow(-)
operating profit(-),
operating cash flow(-)
operating profit(+),
operating cash flow(-)
operating profit(+),
operating cash flow(+)
03Development stage by industry Angel Investment Venture Capital Private Equity Private Equity
Approach Recent transaction
(market data)
Asset approach Market approach Income approach
Market approach

Criteria 2: Determination of Company type

  • Re-determination through 1 to 2 stage pre-check list at the growth stage
  • Selected approach is re-evaluated through individual company's financial and non-financial assessment
inform of Determination of Company type

Criteria 3 : Industry classification

  • Company's industry is classified according to KIS Pricing's industry classification standard
  • The industry classification is used for peer group selection (market based approach) and industry standard growth forecast (income approach)
  • The industry classification allows for more objective and effective valuation by serving as basic guideline for market based approach and income approach
inform of Industry classification