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.