Discounts For Lack Of Marketability - DLOM

A A A

DEFINITION

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

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. Restricted Stock

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

    A corporate action where an acquiring company makes a bid for an acquiree. If ...
  3. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued ...
  4. Liquidity

    1. The degree to which an asset or security can be bought or sold in the market ...
  5. Buyout

    The purchase of a company's shares in which the acquiring party gains controlling ...
  6. Cashless Conversion

    The direct conversion of ownership (from one ownership type to another) of an ...
  7. Acquisition

    A corporate action in which a company buys most, if not all, of the target company's ...
  8. Closely Held Shares

    The shares in a publicly traded company held by a small number of shareholders, ...
  9. Common Stock

    A security that represents ownership in a corporation. Holders of common stock ...
  10. Valuation

    The process of determining the current worth of an asset or company. There are ...
Related Articles
  1. A Look At Primary And Secondary Markets
    Investing Basics

    A Look At Primary And Secondary Markets

  2. Stock Basics Tutorial
    Investing Basics

    Stock Basics Tutorial

  3. Selling Premium As Small Caps Play Catch ...
    Options & Futures

    Selling Premium As Small Caps Play Catch ...

  4. Understanding Leveraged Buyouts
    Fundamental Analysis

    Understanding Leveraged Buyouts

  5. How The Sarbanes-Oxley Era Affected ...
    Fundamental Analysis

    How The Sarbanes-Oxley Era Affected ...

  6. 5 Things To Know About The Alibaba IPO
    Investing

    5 Things To Know About The Alibaba IPO

  7. Trade Like A Hedge Fund Master
    Options & Futures

    Trade Like A Hedge Fund Master

  8. Invest Like Madoff - Without The Jail ...
    Options & Futures

    Invest Like Madoff - Without The Jail ...

  9. How To Profit From Recent Market Divergence
    Options & Futures

    How To Profit From Recent Market Divergence

  10. Binary Options
    Options & Futures

    Binary Options

comments powered by Disqus
Hot Definitions
  1. National Best Bid and Offer - NBBO

    A term applying to the SEC requirement that brokers must guarantee customers the best available ask price when they buy securities and the best available bid price when they sell securities.
  2. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account.
  3. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
  4. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
  5. Jeff Bezos

    Self-made billionaire Jeff Bezos is famous for founding online retail giant Amazon.com.
  6. Re-fracking

    Re-fracking is the practice of returning to older wells that had been fracked in the recent past to capitalize on newer, more effective extraction technology. Re-fracking can be effective on especially tight oil deposits – where the shale products low yields – to extend their productivity.
Trading Center