How Are the Calculations in the Qualitative Assessment Applied?
The Qualitative Assessment in Valutico uses linear equations to transform a company’s risk score into:
A Premium on Cost of Equity (CoE)
A Discount to Trading Multiples for listed peers
These calculations help adjust valuation outcomes based on qualitative factors such as company size, leverage, and management quality.
Breakdown of the Formulas
Premium on Cost of Equity Calculation
The baseline premium starts at 5% (0.05).
For every point above or below 3 (the default score), 2.5% (0.025) is added or subtracted.
Example:
If a company scores 4, the premium would be 5% + 2.5% = 7.5%.
If a company scores 2, the premium would be 5% - 2.5% = 2.5%.
Discount to Trading Multiples Calculation
The base discount starts at 30% (0.3).
For every point above or below 3, 15% (0.15) is added or subtracted.
Example:
If a company scores 4, the discount would be -(30% + 15%) = -45%.
If a company scores 2, the discount would be -(30% - 15%) = -15%.
Why These Assumptions?
The 5% premium and 30% discount intercepts, as well as the 2.5% and 15% slopes, are based on best practices gathered from market participants, particularly in SME valuations. However, we understand that different users may have varying assumptions.