Key Things To Consider When Valuing Shares In A Company


Chandra Mohan
Managing Director
FCA (Singapore), FCCA, CPA Australia, MBA University of Chichester (UK)

Jason Pang
Chief Advisor
CA (Singapore), ASEAN CPA, CVA, CIA, ACRA Public Accountant

An Auditor’s Perspective

This article discusses the valuation of unquoted shares under IFRS 9 Financial Instruments.

As covid-19 continues to spread to other countries with devastating and disastrous consequences, companies around the world must navigate tremendous uncertainty in order to survive and thrive during these difficult times. 

The pandemic’s impact disproportionately impacts a number of industries including retail, food and drinks, hotels, tourism, with all businesses forced to mitigate the effects of rolling lock-downs and social distancing. The management of these businesses will have to proactively assess their company’s performance and the continuity of their current business model. Due to these environmental conditions, impairment and fair value assessments will be important if a company holds:

  1. Subsidiaries
  2. Associates
  3. Property, plant and equipment
  4. Intangible assets
  5. Goodwill (annually assessed)
  6. Quoted shares (which are not considered as investment in subsidiaries or associates)
  7. Unquoted shares (which are not considered as investment in subsidiaries or associates)

Quoted shares vs. unquoted shares?

For a quoted share, the quoted price reflects normal market transactions readily and regularly available from a regulated exchange.

The term unquoted share refers to any share (usually for a private company) other than a quoted share.

In the example below Company A (Co A) invested in unquoted shares in Company B (Co B):

Co A invests in Co B

  • Co A holds a 10% equity stake in Co B
  • Co B has investment properties that are rented out
  • Co B pays an average annual dividend of 5%
  • Co B was incorporated in 2012, and no new shares have been issued

 Co A intends to be a passive investor for;

  1. Dividends and / or
  2. Gains on future sale of investments in Co B

Accounting for unquoted shares

In Co A’s accounts

Initial entry:

Debit Investment in equity instruments (unquoted shares)
Credit Bank (purchase of unquoted shares)

A company’s unquoted shares are classified as a financial asset and are measured at fair value plus transaction cost. Generally, these financial assets are classified as investment in equity instruments at fair value through profit or loss (FVPL), unless the company elects to present subsequent changes in fair value in other comprehensive income, which is not reclassified subsequently to profit or loss.

Subsequently, at every financial year end these assets are measured at fair value, with gains and losses arising from changes in fair value recorded in profit and loss.

Debit / Credit Investment in equity instruments (unquoted shares)
Debit / Credit Gain / (loss) from changes in fair value of unquoted shares

In Co B’s accounts

Debit Bank (proceeds from issuance of ordinary shares)
Credit Share capital

Once the transaction is complete, no further changes are needed.

Using the example above, it is necessary for the fair value of unquoted shares to be measured and accounted for in the company’s profit or loss each year. In addition, the fair value measurement has to be performed in accordance with IFRS 13 Fair Value Measurement. 

If the fair value of unquoted shares cannot be determined reliably, which is rare, the company may decide to measure these shares at cost instead.

IFRS Requirements on Valuation

As per IFRS 13, a fair value measurement aims to estimate the price (e.g. exit price) at which an orderly transaction to sell an asset or to transfer a liability between market participants would take place at the measurement date based on current market conditions. To determine fair value, a professional valuation should be carried out, normally by a Chartered Valuer or Appraiser (CVA).  

A qualified valuer would take into account:

  1. the valuation approach that makes the least subjective adjustments to the inputs used (i.e., it makes best use of relevant observable inputs and minimises the use of unobservable inputs);
  2. In addition to a) ranges of values indicated by the method used and whether they overlap;
  3. the reasons for the difference in value resulting from applying different approaches.

There is judgment not only in applying a valuation approach, but also in selecting the appropriate valuation approach based on the circumstances.

 The following factors should be considered when choosing the most appropriate valuation approach:

  • Information that is reasonably available;
  • Market conditions (such as covid-19);
  • The investment horizon and investment type (i.e., market sentiment is likely to be better reflected by some valuation techniques than others);
  • An investment’s life cycle (i.e., different valuation techniques may capture value at various stages of an investment’s life cycle better than others);
  • The nature of an investee’s business (a volatile or cyclical business may be better captured by certain valuation techniques than by others); and
  • Industry in which the investee operates

Valuation techniques are based on three widely used valuation approaches:

Approach Techniques for valuing unquoted shares
  • Market approach 
By using market transactions involving identical or comparable assets

  • Guideline publicly traded company method
  • Guideline merged and acquired company method
  • Income approach
Converts future amounts (e.g. cash flows or income and expenses) to a single current amount after discounting 

  • Discounted cash flow (DCF) method 
  • Dividend discount model 
  • Option pricing model 
  • Cost/asset approach
Reflects the amount of the net assets at fair market value 

  • Adjusted net assets method

In addition to selecting the appropriate valuation method and technique, there are two specific adjustments to be made when valuing unquoted shares;

  1. Discount for lack of control; and
  2. Discount for lack of marketability.

Discount for lack of control (DLOC) 

DLOCs result from minority interests held by investors, who do not have control of the investee’s affairs, which is why the minority interest value will be lower.

The limitation caused by the lack of control could be as follows: 

  • Election and appointment of directors and officers
  • Declaration and distribution of dividends
  • Raising debt or equity capital 
  • Investment or divestment of assets

Discount for lack of marketability (DLOM)

DLOM occurs because there is insufficient liquidity when selling investments which results in a price reduction for shares that are unquoted. It is often the case for private companies whose shares do not have an active market to sell. Moreover, it may be exacerbated if there is a specific clause/condition for selling the shares in the company’s constitution or shareholder’s agreement.

Along with the above adjustments (DLOC & DLOM), covid-19 will also have to be taken into account when valuing unquoted shares. When preparing a financial forecast based on the discounted cash flow method, the following factors should be considered:

  • Impact of pandemic on the business operations, revenue, cost, etc 
  • Measures to mitigate the impact and their effectiveness
  • Additional capital expenditure in technology 
  • Options for fundraising/borrowings
  • Likelihood of default on debts 
  • Different scenario analysis with probability given the uncertainties  

DCF discount rates are unlikely to be lower than before covid-19. This is because the level of risk in investments is generally higher during uncertain times. Credit rating plays a major role in determining the cost of debt and equity risk premium.

If the valuation is based on a market approach, we must specifically consider whether revenue or earnings based on pre-covid-19 historical performance should be adjusted for the impact of covid-19, as the market multiples based on such revenue and earnings would affect the valuation directly.

In order to perform a proper valuation of unquoted shares, there would be judgement required, and the inputs (including assumptions) for the valuation must be reasonable and justifiable.  

We will discuss other valuation-related topics in our next article.

Let SC Mohan PAC help you navigate the valuation requirements for your business today.

Disclaimer: The information provided here is general in nature and is not intended to be used as professional advice. The information contained in this blog was collected October 2021. 

Optional information which may not be necessary:

Typically, valuation consists of the following steps:

Getting a clear understanding of the engagement Describe the purpose, client, interest, report type, and date of the report
First meeting, purpose, and discussion Understanding of requirements, limitations, laws, regulations, and professional standards
Proposal, fee quotation, engagement letter  Agree on terms of engagement
Data gathering / company and industry analysis Global / national / local analysis via Internet / websites / trade publications / reliability of information
Assessing appropriate valuation methodology  Selection of methods / discount rates / WACC / growth rate, etc.
Valuation calculation  Computation / application minority interest discount / control premium / marketability discounts
Cross checking  Purchase consideration / rule of thumb /results from other approaches
Internal review and quality control process Review of methods adopted, checking computations, reconciliation, source rates / discounts applied, etc.


Draft valuation report Company background, economic and industrial overview, financial reviews, cross-sectional analysis, estimated value, conclusion
Final report Time frame varies 
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