What must be applied to public company comparable multiples when valuing a private company?

When valuing a private company using public company comparable multiples, a liquidity discount is typically applied. This adjustment is necessary because private companies generally lack the same level of liquidity as public companies.

Public companies have shares that are publicly traded on stock exchanges, allowing investors to buy and sell these shares relatively easily. In contrast, private companies do not have a public market for their shares, making it more challenging for investors to exit their investment. This lack of liquidity inherently means that private companies are often valued lower than their public counterparts, even if they are similar in operations and financial performance.

Applying a liquidity discount accounts for this difference in marketability and helps to provide a more accurate and fair valuation for the private company being assessed.