Small Cap Premium for DCF valuation
There are several studies on the small cap premium, and it is not always clear on what premium to use. Normally you can include a certain premium based on your intuition, but you need ammo to back up the assumption. Below are some “ammunition” for that. I hope it helps!
Small Cap Premium according to Ibbotson
| Size | Premium |
| Large companies USD 3,322m < | 0.00% |
| Mid-cap companies USD 774m-USD 3,321m | +1.04% |
| Low-cap companiers USD 202m-USD 773m | +1.75% |
| Micro-cap USD 201m < | +3.47% |
Source: Ibbotson Associates. Under headline: “CAPM—With Small Capitalization Premium”
Small Cap Premium according to Duff & Phelps 2016 Valuation Handbook
| Size | Premium |
| Market cap USD 1,400m < | 0.00% |
| Market cap USD 845m-USD 1,400m | +1.6% |
| Market cap USD 449m-USD 844m | +2.0% |
| Market cap USD 210m-USD 448m | +2.5% |
| Market cap USD 109m-USD 209m | +4.0% |
Source: No direct source link available, but can be found on page 13 here.
Small Cap Premium according to KPMG Australia 2017
| Size | Premium |
| Market cap USD 1,001m < | 0.0% |
| Market cap USD 501m-USD 1,000m | 0.0% |
| Market cap USD 251m-USD 500m | 0.9% |
| Market cap USD 101m-USD 250m | +1.4% |
| Market cap USD 51m-USD 100m | +3% |
| Market cap USD 50m < | +5% |
Source: KPMG (Australia) study 2017 on small cap premium on page 14
Do you have additional links or studies? Please comment below and we can help people who are looking for the correct small cap premiums for their models. Perhaps they are looking for country specific premiums that you already have?
Thanks and have a great day! (thanks for also sharing my website which helps my content beeing available to more users worldwide.)
Micro-cap USD 201m < +3.47% – Is this an updated small cap premium? 2020?
Is the Ibbotsson Data from 2018? or is it older?
Yes it is. There is a link to latest info.
Hi, is size premium to be considered for entities fully owned by Government?
It could vary from case by case, depending of its small or large. But the valuation should probably do a stand alone valuation regardless, so owner should not affect the valuation in my view.