Discounts For Lack Of Marketability - DLOM

AAA

DEFINITION of 'Discounts For Lack Of Marketability - DLOM'

A method used to help calculate the value of closely held and restricted shares. The theory behind DLOM is that a discount exists between the value of a company's stock that is and is not marketable. Various methods have been used to quantify the discount that can be applied including the restricted stock method, IPO method and the option pricing method.

INVESTOPEDIA EXPLAINS 'Discounts For Lack Of Marketability - DLOM'

The restricted stock method purports that the only difference between a company's common stock and its restricted stock is the lack of marketability of the restricted stock.
Subsequently, the price difference between both units should arise due to this lack of marketability. The IPO method relates to the price difference between shares that are sold pre-IPO and post-IPO. The percent difference between the two prices is considered the DLOM using this method. The option pricing method uses the option's price and the strike price of the option as the determinants of the DLOM. The option price as a percentage of the strike price is considered the DLOM under this method.

The consensus of many studies suggests that the DLOM ranges between 30-50%.

RELATED TERMS
  1. Acquisition

    A corporate action in which a company buys most, if not all, ...
  2. Restricted Stock

    Insider holdings that are under some other kind of sales restriction. ...
  3. Takeover

    A corporate action where an acquiring company makes a bid for ...
  4. Closely Held Shares

    The shares in a publicly traded company held by a small number ...
  5. Valuation

    The process of determining the current worth of an asset or company. ...
  6. Common Stock

    A security that represents ownership in a corporation. Holders ...
Related Articles
  1. Investing Basics

    Stock Basics Tutorial

    If you're new to the stock market and want the basics, this is the tutorial for you!
  2. Investing Basics

    A Look At Primary And Secondary Markets

    Knowing how the primary and secondary markets work is key to understanding how stocks trade.
  3. Options & Futures

    Give Yourself More Options With Real Estate Options

    Real estate options have many benefits, including a smaller initial capital requirement.
  4. Options & Futures

    The Fancy Way To Diversify Your Portfolio: Precious Metal Options

    A guide with strategies on how to invest or trade in precious metals by using options.
  5. Options & Futures

    When And How To Take Profits On Options

    Here are the different criteria to ensure maximum profit taking while trading options.
  6. Investing

    Additional Paid-In Capital

    Additional paid-in capital is an account in the equity section of a balance sheet. It represents the additional amount paid for the company’s shares over the par value of the shares. Additional ...
  7. Options & Futures

    The Future Is Now: All About Futures ETFs

    A new security class - futures ETFs - is gaining popularity. We tell you how futures ETFs work and offer tips.
  8. Options & Futures

    How To Protect A Short Position With Options

    Short selling can be a risky endeavor, but the inherent risk of a short position can be mitigated significantly through the use of options.
  9. Options & Futures

    Sensitivity Analysis For Black-Scholes Pricing Model

    Trading options requires complex calculations, based on multiple parameters. Which factors impact option prices the most?
  10. Options & Futures

    How To Make Money WIth Real Estate Options

    Buying real estate options is one way to invest in real estate at a lower entry cost.

You May Also Like

Hot Definitions
  1. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  2. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  3. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  4. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  5. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  6. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
Trading Center