Valuation of agrifood SMEs. Lessons to be learnt from the stock market

  • Raül Vidal Institut Els Alfacs, Dept. Administration and Management. San Carles de la Ràpita (Tarragona)
  • Javier Ribal Universitat Politècnica de València, Dept. Economic and Social Sciences. Camino de Vera s/n, 46022 Valencia
Keywords: bootstrap, capital structure, CAPM, company valuation, cost of equity, private companies


The European agrifood industry is mostly characterized by small and medium enterprises (SMEs); as in 2013, SMEs represented 99.13% of the total number of companies. The valuation of SMEs not listed in any stock market is a complex task since there is not enough information on comparable transactions. When applying discounted cash flow (DCF) models to value private agrifood companies, the capital structure and the cost of equity are two key parameters to be determined. The implications of these parameters in the value of the enterprise are not clear inasmuch as it is not possible to carry out a contrast due, precisely, to the lack of comparables. The main goal of this study is to determine the biases that those two parameters can introduce into the valuation process of an agrifood company. We have used the stock market as a framework wherein to apply a simple fundamental model to the companies of the European food industry in order to obtain three valuation multiples. By means of two bootstrap approaches, the bias induced in the multiples has been assessed for every year from 2002-2013. Results show that the use of the return on equity as cost of equity tends to undervaluation; the use of capital asset pricing model (CAPM) tends to a slight overvaluation, whereas using the total beta induces an undervaluation bias. Moreover, the capital structure shows little influence on the valuation multiples. The conclusions drawn from this paper can be useful for managers and shareholders of privately-held agrifood companies.


Download data is not yet available.


Bhojraj S, Lee C, 2002. Who is my peer? A valuation based approach to the selection of comparable firms. J Account Res 40 (2): 407-439.

Breuer W, Fuchs D, Mark K, 2014. Estimating cost of capital in firm valuations with arithmetic or geometric mean or better use the cooper estimator? Eur J Financ 20 (6): 568-594.

Chernick M, LaBudde R, 2014. An introduction to bootstrap methods with applications to R. John Wiley & Sons.

Chullen A, Kaltenbrunner H, Schwetzler B, 2015. Does consistency improve accuracy in multiple based valuation? J Bus Econ 85 (6): 635-662.

Cruz A, 2012. Procesos estocásticos en la valuación de proyectos de inversión, opciones reales, árboles binomiales, simulación bootstrap y simulación Monte Carlo: flexibilidad en la toma de decisiones. Contaduría y Administración 57 (2): 83-112.

Damodaran A, 2006. Damodaran on valuation, 2nd Ed. Wiley Finance, NY.

Davison A, Hinkley D, 1997. Bootstrap methods and their application, Vol. 1. Cambridge University press.

Declerck F, 2016. Mergers & acquisitions in the food business: How did the 2002 and 2008/2009 economic crises impact corporate valuation? Int J Food Sys Dyn 7 (3): 183-195.

Demirakos EG, Strong NC, Walker M, 2004. What valuation models do analysts use? Account Horiz 18 (4): 221-240.

Demirakos EG, Strong NC, Walker M, 2010. Does valuation model choice affect target price accuracy? Eur Account Rev 19 (1): 35-72.

Dukes WP, Peng ZJ, English PC, 2006. How do practitioners value common stock? J Invest 15 (3): 90-104.

Efron B, 1979. Bootstrap methods: another look at jackknife. Ann Stat 7 (2): 1-26.

Eurostat, 2016. Structural business statistics.

Feenstra D, Wang H, 2000. Economic and accounting rates of return. Research Report 00E42, University of Groningen, Research Institute SOM.

Frykman D, Tolleryd J, 2003. Corporate valuation: an easy guide to measuring value. Prentice Hall.

Gavious I, Parmet Y, 2010. Do private firm valuation contain incremental information content over routine analyst valuations? Res Int Bus Financ 24: 223-234.

Hesterberg T, Moore D, Monaghan S, Clipson A, Epstein R, 2005. Bootstrap methods and permutation tests. Introduction to the Practice of Statistics 5: 1-70.

Imam S, Barker R, Clubb C, 2008. The use of valuation models by UK investment analysts. Eur Account Rev 17 (3): 503-535.

Imam S, Chan J, Shah SZA, 2013. Equity valuation models and target price accuracy in Europe: evidence from equity reports. Int Rev Financ Anal 28: 9-19.

Jennergren L, 2008. Continuing value in firm valuation by the discounted cash flow model. Eur J Oper Res 185 (3): 1548-1563.

Kaw A, Kalu E, Nguyen D, 2011. Numerical methods with applications: Abridged.

Koller T, Goedhart M, Wessels D, 2010. Valuation: measuring and managing the value of companies. Wiley, NJ.

Larkin P, 2011. To iterate or not to iterate? Using the WACC in equity valuation. J Bus Econ Res 9 (11): 29-34.

Leys C, Ley C, Klein O, Bernard P, Licata L, 2013. Detecting outliers: Do not use standard deviation around the mean, use absolute deviation around the median. J Exp Soc Psychol 49 (4): 764-766.

Liu J, Nissim D, Thomas J, 2002. Equity valuation using multiples. J Account Res 40 (1): 135-172.

Marques-Perez I, Guaita-Pradas I, Peréz-Salas JL, 2017. Discounting in agro-industrial complex. A methodological proposal for risk premium. Span J Agric Res 15 (1): e0105.

McLaney E, Pointon J, Thomas M, Tucker J, 2004. Practitioners' perspectives on the UK cost of capital. Eur J Financ 10 (2): 123-138.

Mercer C, 2003. A primer on the quantitative marketability discount model. CPA J 73 (7): 66-68.

Modigliani F, Miller M, 1958. The cost of capital, corporation finance and the theory of investment. Am Econ Rev 48 (3): 261-297.

Morningstar, 2005. Average price ratios. Morningstar methodology papers, Aug 31.

Petersen C, Plenborg T, Scholer F, 2006. Issues in valuation of privately held firms. J Priv Equity 10 (1): 33-48.

Plenborg T, Pimentel R, 2016. Best practices in applying multiples for valuation purposes. J Priv Equity 19(3): 55-64.

R Core Team, 2016. R: A language and environment for statistical computing. R Foundation for Statistical Computing. Vienna, Austria, 2012.


Ribal J, Blasco A, Segura B, 2010. Estimation of valuation multiples of Spanish unlisted food companies. Span J Agric Res 8 (3): 547-558.

Rojo A, 2013. Valoración de la empresa por descuento de flujos de efectivo: la importancia del tipo de inversor. Análisis Financiero 121: 6-16.

Rojo A, 2014. Privately held company valuation and cost of capital. J Bus Val Econ Loss Anal 9 (1): 1-21.

Rojo A, García D, 2006. La valoración de empresas en España: un estudio empírico. Rev Esp Financ Cont 35 (132): 913-934.

Shapiro S, Wilk M, 1965. An analysis of variance test for normality. Biometrika 52 (3-4): 591–611.

Turner J, 2008. The circularity problem with free cash flow. Bus Val Rev 27 (3): 138-147.

Vakili K, Schmitt E, 2014. Finding multivariate outliers with FastPCS. Comput Stat Data Anal 69: 54-66.

Vélez-Pareja I, Tham J, 2009. Market value calculation and the solution of circularity between value and the weighted average cost of capital WACC. Rev Adm Mackenzie 10 (6): 101-131.

Vinturella J, Erickson S, 2003. Raising Entrepreneurial Capital. Acad Press.

Woolley S, 2009. Sources of value: A practical guide to the art and science of valuation. Cambridge Univ Press, Cambridge.

How to Cite
VidalR., & RibalJ. (2018). Valuation of agrifood SMEs. Lessons to be learnt from the stock market. Spanish Journal of Agricultural Research, 15(4), e0118.
Agricultural economics