Glossary
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Portfolio Discount
« Back to Glossary IndexA portfolio discount in the context of business valuation refers to a reduction in the value of a collection of assets (such as a portfolio of investments or businesses) when considered as a whole, compared to the sum of the individual values of each asset. This discount is often applied to account for the potential risks and lack of diversification that may be present in holding a group of assets together. It’s important to note that the application of a portfolio discount is a nuanced aspect of business valuation, and its magnitude can vary based on the specific circumstances of the portfolio and the valuation methodologies used. Some appraisers and analysts may choose not to apply a portfolio discount if they believe that the benefits of diversification outweigh the perceived risks. Investors and business appraisers carefully consider factors such as the level of control, diversification benefits, marketability, and liquidity when determining whether to apply a portfolio discount and, if so, the appropriate magnitude of the discount.
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