Morningstar Offers Valuation Services for Privately Owned Businesses and Securities

Morningstar, Inc., has launched a valuation services business that values privately-owned firms and securities for purposes such as the sale of a business, estate planning, or financial reporting.

Morningstar Valuation Services leverages Morningstar’s proprietary techniques for analyzing securities and the cost of capital expertise of Ibbotson Associates, a wholly owned subsidiary of Morningstar, according to an announcement. 

The new valuation consulting service covers business valuations for companies as a whole, specific securities, or intangibles across all major industries and for firms of any size. Independent business appraisals through Morningstar Valuation Services can help owners assign value for: a sale, shareholder transactions, succession planning, employee stock option plans, fairness opinions, or purchase price allocation, the announcement said.  

In addition, the team can help with financial reporting tasks, such as fair value calculation, goodwill impairment, and share-based payment. Valuations of intangibles are also available, such as patents, startups, royalty streams, and goodwill. Additionally, the valuation team continues to provide litigation support and expert witness testimony in situations where business valuations are contested.  

Each valuation starts with an onsite visit from Morningstar’s team of valuation practitioners, to better understand the business and its individual needs. The team completes a detailed analysis of the company compared to its competitors, which is then subjected to a rigorous in-house peer review.  

The analysis is based on factors such as:

  • cost of capital—decades of Ibbotson research helps set the industry standard for measuring business risk;
  • economic moat—a proprietary calculation that measures a company’s competitive advantage;
  • cash-flow cushion—a proprietary, forward-looking ratio that measures forecasted cash flows against a firm’s financial obligations; and
  • distance to default—a quantitative model that estimates the probability of a firm falling into financial distress based on the market value and volatility of its assets.