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How do we calculate high and low bounds?
How do we calculate high and low bounds?
Written by Daniel
Updated over a week ago

Calculating the valuation of anything is an exercise in uncertainty management. The final calculated valuation, despite being a good estimate, should always be taken with a grain of salt and considered as the center point of a range.

That is why at Equidam, despite the applied methods yielding an average number, we always display a range in the form of a high bound and a low bound limits of that range.

The range size is depended on the valuation average (that is the weighted average of the methods used) and the variability of those methods. If all methods are very close together, the range (so the percentage difference between high bound and low bound) will be smaller. If the methods vary wildly, as it often happens for very early stage companies, the range will also be much wider, reflecting the larger uncertainty in valuation.

How do we estimate the range?

Technically speaking, we want the range to roughly represent the probability of the valuation being within those boundaries. The statistical way to do that is to approximate the valuation of the company with a normal curve, and determine how much probability we want to take into account for our range.

From our experience and the feedback of our users, we determined the 30th percentile and the 70th percentile to be the most apt at representing the low and high situations in most of the cases, and that is what we use to calculate the low and high bound.