Valuing Companies with Circular Cross-Ownership

Summary

The document poses a valuation problem involving three companies that each own another company in a complete loop. One company has cash and no debt, and the other two also have cash and no debt. Repeatedly applying ownership-based valuation appears to make each company’s value grow without reaching a stable result.

It highlights a limitation of valuing each entity in isolation when ownership claims feed back into one another. The document provides no solution, worked valuation, or additional balance-sheet detail to establish a unique value. It therefore serves mainly as a prompt to examine how circular ownership should be represented and consolidated, rather than as a complete valuation method.

Key ideas

• Circular ownership can make iterative company-by-company valuation appear to diverge.
• The example assigns cash and no debt to each company while linking their ownership in a loop.
• The document raises the valuation question but does not provide a resolution or evidence for a specific valuation method.

Tags

# Valuation of companies, which belong to each other


# Valuation of companies, which belong to each other












There are three companies: A, B and C. A fully belongs to B, B fully belongs to C and C fully belongs to A. Company A has USD 1 mln of cash and no debt. Company B and C each have USD 10 mln of cash and no debt.

These companies are registered in different jurisdictions, so that regulators couldn't prevent this circle from happening.

My problem is that when I try find their valuation, every iteration the value of those companies increases and doesn't ever converge. What am I missing?

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.