There are unique risks and obstacles not present in developed markets.
Additional considerations include
- macroeconomic uncertainty,
- illiquid capital markets,
- controls on the flow of capital into and out of the country,
- less rigorous standards of accounting and
- disclosure, and high levels of political risk.
To estimate value, three different methods are used:
- a discounted cash flow (DCF) approach with probability-weighted scenarios that model the risks the business faces,
- a DCF valuation with a country risk premium built into the cost of capital, and
- a valuation based on comparable trading and transaction multiples.
For developed nations, the analyst must:
- develop consistent economic assumptions,
- forecast cash flows, and
- compute a WACC.
Computing cash flows, however, may require extra work because of accounting differences.
If done correctly, the two DCF methods (1 and 2 above) should give the same estimate of value.