PORI
The Price of Recent Investment method is often used to value companies that are in their seed, start-up, or early stages. At these stages, the companies usually don't have current earnings or positive cash flows, and they are not expected to have them in the short term.
This valuation method is generally appropriate for all private equity investments but only for a limited period after the investment transaction.
When the market is stable and there is little change in the company or the external market environment, this method can remain appropriate for a longer time. In contrast, during periods of rapid change, the method might be suitable for a shorter period.
If the investment being valued was made recently, the cost of that investment can be a good indicator of its Fair Value. Similarly, if there has been any recent investment in the company being valued, the price of that investment can serve as a basis for valuation.
By CA L.Muralidharan and CPA L.Mukundan
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