How to Compute Stock Value in a Closely Held C-Corporation
Original post by Walter Johnson of Demand Media
A “closely held C corporation” is a typical limited liability business — the majority of whose stock is held by a few people, such as a family. A C corporation is distinguished by the fact that taxes are assessed on the income of the company itself. An S corporation, by contrast, is not taxed: Only its investors pay tax on their income as the owners of the company. This contrasting tax treatment is very significant when calculating stock values.
Determine the market value of the company's assets. This includes accounts receivable, capital goods, intangible goods and the company's present market share. The market value is important because this is the value that it would fetch in the market now, not the amount of money paid for it. The market value must be used because the corporation is closely held. Stock from a closely held company is traded only infrequently, if at all, so there is no clear value of the stock.
Identify the liabilities of the company. This includes all accounts payable, all payments to bondholders and depreciation. Because you are dealing with a C corporation, the corporate tax rate assessed on the company's income is essential. This would be included as a liability in that it is an expense.
Assess the company's cash flow and projections of cash flow for the next year at least, if not the next two or three years.
Add the value of the company's capital to its cash flows. Subtract from this figure the company's debt, depreciation and regular taxes. Divide the result by the number of outstanding shares. This will give a fairly accurate stock price.
- Valuebasedmanagement.net: WACC, Weighted Average Cost of Capital
- Stock Analysis on Net: Nokia Corp. (NOK)/Enterprise Value (EV)
About the Author
Walter Johnson has more than 20 years experience as a professional writer. After serving in the United Stated Marine Corps for several years, he received his doctorate in history from the University of Nebraska. Focused on economic topics, Johnson reads Russian and has published in journals such as “The Salisbury Review,” "The Constantian" and “The Social Justice Review."