EnvironmentAsafirm’s holdingsbecome morenumerous,
estimating the values of individual holdings will become
moreonerous.In fact,theinformationneededto valuethe
crossholdingsmaybeunavailable,leavinganalystswithless
precise choices:
- Marketvaluesofcrossholdings.Iftheholdingsare
publiclytraded,substitutingthemarketvaluesofthe
holdingsforestimatedvalueisanalternativeworth
exploring. While you risk building into your
valuationanymistakesthemarketmightbemaking
in valuing these holdings, this approach is more
time-efficient,especiallywhenafirmhasdozensof
cross holdings in publicly traded firms. - Estimated market values. When a publicly traded
firmhasacrossholdinginaprivatecompany,there
isnoeasily accessiblemarket valuefortheprivate
firm. Consequently,you might have to make your
bestestimateofhowmuchthisholdingisworth,with
thelimitedinformationthatyouhaveavailable.There
are a number of alternatives.
Onewaytodothisistoestimatethemultipleofbook
value atwhich firms in thesame business(as the
private business in which you have holdings)
typically tradeand applythis multipleto the book
valueoftheholdingintheprivatebusiness.Assume,
forinstancethatyouaretryingtoestimatethevalue
of the holdings of a pharmaceutical firm in five
privately held biotechnology firms, and that these
holdings collectively have a book value of $50
million.Ifbiotechnologyfirmstypicallytradeat 10
timesbookvalue,theestimatedmarketvalueofthese