Discount Rate

A reduction to business value reflecting the risk that the departure of one or more critical individuals would materially impair the company's earnings, relationships, or operational capability. Key person discounts are most significant in professional services, early-stage ventures, and founder-led businesses where revenue concentration or specialised expertise is tied to specific individuals.

A reduction applied to the pro-rata value of a business interest to reflect the lack of control associated with a minority ownership position. Minority discounts account for the inability of minority shareholders to influence key decisions such as dividend policy, asset sales, and management appointments.

The annualised rate of return that smooths out growth over multiple years, calculated as (ending value / beginning value)^(1/years) minus one. CAGR is used to compare growth trajectories of companies or metrics across different time periods.

The rate at which a company's existing customers cease doing business with it over a given period, typically expressed as an annual percentage. Customer attrition rate is a critical input to the valuation of customer relationship intangible assets under both the multi-period excess earnings method and the distributor method.

The theoretical rate of return on an investment with zero default risk, used as the foundation for building discount rates in valuation. In practice, the yield on government bonds of a maturity matching the expected cash flow duration serves as a proxy — typically US Treasury bonds for USD-denominated valuations or UK gilts for GBP-denominated analyses.

The phenomenon where the market values a diversified conglomerate at less than the aggregate value of its individual business units if they were operated independently. The conglomerate discount — typically estimated at 10% to 15% — reflects investor concerns about capital allocation inefficiency, cross-subsidisation, management complexity, and reduced transparency across disparate business lines.

The time required for an investor to recover their initial investment from the cash flows generated by the acquired business or asset. Earnback period is a practical measure of investment risk, and for intangible-heavy acquisitions, it reflects how quickly acquired intangible assets begin generating measurable returns.

A graphical representation showing the proportion of an asset population that remains in service over time, plotted from 100% at inception to 0% at the end of the longest-surviving unit's life. Survival curves are used in intangible asset valuation to model the expected decay pattern of customer relationships, subscriber bases, and other wasting intangibles.

What is the Multi-Period Excess Earnings Method (MPEEM)?

MPEEM isolates the earnings attributable to a single intangible asset by deducting charges for all other contributory assets from total earnings, then discounting the residual cash flows to present value.

How do private equity firms value portfolio companies?

PE firms typically use a combination of EBITDA multiples, discounted cash flow (DCF) analysis, and comparable transactions, with increasing focus on identifying and valuing intangible assets that drive sustainable growth.

What is the weighted average cost of capital (WACC)?

WACC is the average cost of all capital sources (debt and equity) a company uses, weighted by their proportions — it is the minimum return the company should generate to satisfy all investors.