Review of Valuation Models for Private Enterprises in Nigeria

Abstract

The objective of this paper is to ascertain which of the two models (i) a model based on earnings variables alone and (ii) a model based on both net asset and earnings variables proves to be better than the other in valuing private enterprises in Nigeria using three sample firms.  It is true assets are very important in a firm but it is not easy to adjust the value of the assets in the balance sheet to get the net asset because of the obvious differences between the historical cost of the assets and their current market value.   To incorporate asset variables in model (ii), equity value was ascertained by subtracting long-term debt (balance sheet item) from firm value.  Model (ii) therefore which recognizes the contributions of assets in earning potentials of a firm appears to be better than the model that recognizes earnings alone. The theoretical formulations, and empirical support of the valuation approaches are evidence of the model`s reliability and validity.

Key words: Identify, valuation models, Private enterprises, earnings, earnings/asset