HEC-Ecole de gestion de l'Université de Liège
HEC-Ecole de gestion de l'Université de Liège

DCF model and the additional risk to consider in SME valuation. Theoretical models and studies versus practicians' view.

Comblain, Tomas ULiège
Promotor(s) : Streel, Alexandre ULiège
Date of defense : 31-Aug-2021 • Permalink :
Title : DCF model and the additional risk to consider in SME valuation. Theoretical models and studies versus practicians' view.
Translated title : [fr] Le modèle du DCF et le risque supplémentaire à considérer lors de l'évaluation des PME – Modèles théoriques et études versus l'avis des praticiens
Author : Comblain, Tomas ULiège
Date of defense  : 31-Aug-2021
Advisor(s) : Streel, Alexandre ULiège
Committee's member(s) : Balthazar, Laurent ULiège
Wenric, Laurent 
Language : English
Number of pages : 131 (avec annexes)
Keywords : [fr] évaluation, pme, dcf, sfp, small firm premium, discounted cash flow, valuation, sme, ibbotson, morningstar, duff & phelps
Discipline(s) : Business & economic sciences > Finance
Institution(s) : Université de Liège, Liège, Belgique
Degree: Master de spécialisation en gestion des risques financiers
Faculty: Master thesis of the HEC-Ecole de gestion de l'Université de Liège


[en] Company valuation is at the center of many crucial steps in the life of an SME. Whereas works on company valuation are plentiful, those focused on SME valuation are much scarcer. This master's thesis firstly aims to provide a summary of the works that have been realized on the adaptation of the discount rate when valuing a company through the Discounted Cash Flow (DCF) model. Another objective of the paper is to determine if the theory put forward through these works finds its counterpart in the practicians' day-to-day when valuing SMEs in Belgium. Through the realization of interviews with eight business valuation experts, answers to this question were provided. Though used by most of the respondents, the DCF model is not perfect and is not suitable for every type of company. When suitable, however, adaptations to the expected rate of return are often necessary to take into account the fact that the company is an SME and therefore has riskier characteristics than large or quoted companies. Such risks include management dependency as well as illiquidity. The adaptations made to the model often consist in adding a small firm premium (SFP) to the base rate. Though studies on the topic exist and propose either referencials or ways to compute this SFP, there is a clear tendency from Belgian professional to draw this premium from their own experience, rather than theoretical works.



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  • Comblain, Tomas ULiège Université de Liège > Master spéc. gest. risques fin.


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