The fair value of unlisted shares is the price at which the shares would be bought or sold between knowledgeable, willing parties in an arm’s length transaction. Estimating the fair value of unlisted shares can be challenging, as there is no readily available market price for the shares and the fair value must be determined using other methods.
One method for estimating the fair value of unlisted shares is the income approach, which values the shares based on the present value of future cash flows. The income approach involves estimating the future cash flows that the shares are expected to generate, and then discounting those cash flows at a rate that reflects the risks associated with the cash flows.
Another method for estimating the fair value of unlisted shares is the market approach, which values the shares based on comparable listed shares. The market approach involves identifying similar listed shares and comparing their market prices to the unlisted shares. The market approach can be challenging if there are no comparable listed shares, or if the listed shares are not sufficiently similar to the unlisted shares.
A third method for estimating the fair value of unlisted shares is the cost approach, which values the shares based on the cost of reproducing or replacing the assets of the company. The cost approach involves estimating the cost of reproducing or replacing the assets of the company, and then adjusting the cost for any changes in the value of the assets since they were acquired.
Overall, estimating the fair value of unlisted shares is a complex and uncertain process that requires careful analysis and judgment. The fair value of unlisted shares can be sensitive to the assumptions and methodologies used, and can vary significantly depending on the approach and the specific circumstances of the company.
