In order to calculate an approximate value to Tobin's Q I'm in need to make a conversion from book value to market value for unlisted firms.
In theory, that is assuming a perfect economic equilibrium in which each asset is precisely priced at its value, this should be easy. In practice, this is a very difficult task. The difficulty is increased by the accounting rules, which could actually distort the way in which the value of the assets is reported, For example think about amortization practices. For a fast and dirty solution, you can obtain an equity measure using its same definition: equity=total assets-debt. Pay attention, maybe you have to ignore commercial short term debts and just consider financial long term debts in the equation.
Since the Financial Statement (Balance Sheet) is showing the Financial Position or the Financial condition of the firm, in my opinion we can choose the "Market Value "or "Net Realizable value" of such asset. But please consider the "tax" imposed on the "gain" obtaining from the changing the number. In some countries, like mine, Indonesia, the Tax Office will calculate the tax.
One of the easiest ways to approximate the market value of a private company is to use EBITDA multiple. The idea is that you take public companies that are similar to the private company you're interested in. For each of the public companies, you divide their market value by EBITDA. As a result, you get the EBIDTA multiple for each of the public companies that are similar to your private company. Take an average over these multiples. Then multiply the EBITDA of your private company by this average multiple, and you'll get the approximation of its market value.
I more or less agree with the others, i.e. if there is no public listing, the value of the firm is the realistically taken, book value of its assets. Now, when I say "realistically taken", I mean negotiable with a buyer or buyers. Much depends on whether the assets are to be sold piece by piece, or, conversely, in one lump as a complete business. The buyers will take into account the dynamics of the business in question. Following the logic of Franco Modigliani, the really negotiable book value of a firm's assets is mostly its future expected value, as seen by the buyers.
The difference between the market value (MV) and the book value (BV) represents indirectly the intangible assets of the firm.
This is reflected in the difference between the MV/BV ratios of hi-tech versus low-tech firms (see my article below about valuation of biotech firms).
Thus it will be inappropriate to estimate the MV of a firm by using its BV since inatnagible assets vary significantly between different industries.
In order to estimate a non listed firm's market value you can use the methodology described in my first artilce (about IPI) plus data on listed companies from the same industry.
I suggest the following steps:
A. Estimate the average (or median) Intellectual Property Intensity (IPI) of the industry using data from listed firms, and the following definitions (see section 3 in the IPI article):
1) ABV = D + BV
2) AMV = DMV + MV = D + MV
ABV - Assets Book Value
AMV - Assets Market Value
D - Debt Book Value.
DMV - Debt Market Value
3) IPI = (AMV - ABV) / AMV
B. Calculate the non listed firm's P/B using the industry's IPI (see equation 8 in the IPI article).
P/B = MV/BV = (1 + IPI*(D/B))/(1 - IPI)
D/B = Debt to BV
C. Calculte the non listed firm estimated MV
MV = BV * P/B
Using such method will enable you to reflect the variation in intangible assets between industries.
Article Intellectual Property Intensity (IPI) and the Value-Growth Effect
Article Intellectual property and the valuation of biotechnology
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