Certified Valuation Analyst (CVA) Exam 2025 – 400 Free Practice Questions to Pass the Exam

A company may experience a discount for lack of marketability primarily due to limited shares being available for trading. This situation typically arises when a company is privately held or has a small number of shares available in the market. When investors cannot easily buy or sell shares, there is generally a lower demand, which can lead to a reduced value for those shares. This discount reflects the risk associated with the illiquidity of the investment; potential buyers are aware that they may have difficulty reselling the shares in the future, consequently lowering their willingness to pay a premium price.

In contrast, factors like a strong competitive advantage, high anticipated growth rates, or recent acquisitions are more likely to enhance a company's valuation and attractiveness in the market. Such attributes can negate the risks associated with marketability issues, thus explaining why they don't contribute to a marketability discount.