A survey of valuation methods used by Business valuation practitioners in Kenya

Abstract

This study is a survey of the different methods of business valuation used by the business valuation practitioners in Kenya. The objectives of the study were to find out which methods are preferred by the practitioners and the reasons for use of those methods. The practitioners selected for study were categorized as into four groups: Accountants, investment bankers, stockbrokers and investment advisers. A sample of 96 valuation practitioners were selected out of which 61 were accountants, representing 10% of the total population of practicing accountants. The total populations of the other categories of practitioners were used due to the small population sites. Primary data was collected through questionnaires and 30 practitioners responded positively. Data was analysed through descriptive statistics and presented in tabular and graphical formats. Comparison was made between two categories of respondents, accountants and investment bankers, to find out if there were preferences for certain methods by one category compared to the other. Analysis was also made of the reasons for choice of valuation methods for the two categories of practitioners. The study found that the discounted cash flow is the most frequently used method of business valuation, followed by market valuation method and the asset book value method. Comparative analysis indicated more use of the discounted cash flow method by the investment bankers than by accountants. Although accountants use the DCF less than the !tankers they trust the method more in arriving at the true value of a business. Subjectivity was identified to"'e of significant influence in arriving at business valuations. The study concluded that this is an indicator of difficulties in practical application of the methods preferred by the practitioners. Recognizing a number of limitations, the study has recommended further research to identify the reasons that make practitioners use methods that they feel may not give a true value of a business.