We are pleased to announce the publication of the 2013 Kroll Risk Premium Report. Now in its 18th year of publication, the Risk Premium Report continues to be at the forefront in providing comprehensive valuation methodology and data. 1,2

The 2013 Kroll Risk Premium Report includes data available through December 31, 2012, and should be used for calendar year 2013 valuations. Archived versions of the Risk Premium Report (1996-2012) are available through our distributors (see purchasing information below).

Who Should Use the Kroll Risk Premium Report

The Kroll Risk Premium Report is designed to assist financial professionals in estimating the cost of equity capital ("cost of equity", or "COE") for a subject company.3 The risk premia and size premia published in the Risk Premium Report can be used to develop levered and unlevered COE estimates using both the build-up method and the Capital Asset Pricing Model (CAPM).

The Risk Premium Report, and the accompanying online Kroll Risk Premium Calculator (“Risk Premium Calculator”, or “Calculator”), are designed to serve the needs of:

  • Corporate finance officers for pricing or evaluating mergers and acquisitions, raising private or public equity, property taxation, and stakeholder disputes.
  • Corporate officers for the evaluation of investments for capital budgeting decisions.
  • Investment bankers for pricing public offerings, mergers and acquisitions, and private equity financing.
  • CPAs who deal with either valuation for financial reporting or client valuations issues.
  • Judges and attorneys who deal with valuation issues in mergers and acquisitions, shareholder and partner disputes, damage cases, solvency cases, bankruptcy reorganizations, property taxes, rate setting, transfer pricing, and financial reporting.

The Risk Premium Report features three studies that analyze returns based on company size and upon fundamental company risk:

  • Size Study: Analyzes the relationship between equity returns and company size, using up to eight measures of company size (i.e. "size measures").
  • Risk Study: Analyzes the relationship between equity returns and accounting-based fundamental risk measures.
  • High-Financial-Risk Study: Analyzes the relationship between equity returns and high-financial-risk, as measured by the Altman z-Score.

Recent Changes and Additions

The 2013 Risk Premium Report includes a new, expanded section about using the Report to value small companies. This new section provides a listing of the smallest and largest companies in “Portfolio 25” (Portfolio 25 is comprised of the smallest companies) for each of the eight size measures (see Table 2 on page 22). This was added to give the valuation professional greater capability to gauge the size characteristics of his or her subject company relative to the size characteristics of companies that comprise Portfolio 25, and also provides support for adjustments to premia made by utilizing the “regression equation method” to estimate custom “interpolated” risk premia or size premia.

In addition, an important milestone to the Report is the development of the web-based Kroll Risk Premium Calculator (introduced in 2011). The online Risk Premium Calculator makes using the Risk Premium Report even easier, and saves time. The online Risk Premium Calculator:

  • Estimates levered and unlevered cost of equity capital (COE) for your subject company dependent on its size and risk characteristics for any valuation date from January 1, 1996 to present, using both the capital asset pricing model (CAPM) and buildup models.
  • Looks up the long-term risk free rate for your valuation date.4
  • Calculates, applies, and documents the “ERP Adjustment" to your subject company's COE estimates.
  • Adjusts an SBBI industry risk premium (IRP) so that it can be used in a Buildup model using Risk Premium Report size premia.5

The online Risk Premium Calculator then provides full sourcing and documentation of cost of equity capital (COE) estimates for your subject company:

  • Executive Summary: The Executive Summary is delivered in Microsoft Word format and is fully customizable. The Executive Summary includes sourcing, key inputs, and a concluded range of cost of equity capital estimates using both the buildup and CAPM methods.
  • Support and Detail Spreadsheet: The Support and Detail Spreadsheet is delivered in Microsoft Excel format. The Support and Detail spreadsheet includes a highly detailed record of all sourcing, inputs, outputs, and calculations used in the development of cost of equity capital estimates for your subject company.

Also in the Kroll Risk Premium Report:

  • Expanded analysis and commentary on the Size Effect – is the Size Effect still relevant? Is the Size Effect limited to only the smallest companies? Is the Size Effect merely a proxy for liquidity?
  • The Duff & Phelps Recommended Equity Risk Premium (ERP). This new section includes a historical table of the Kroll Recommended ERP and the risk-free rate it was developed in conjunction with (from 2008 to present).
  • Risk-free rate normalization – Why and when using a normalized risk-free rate in your cost of equity calculations may be appropriate.
  • Expanded commentary about the “ERP Adjustment” – understanding, properly applying, and explaining the Kroll ERP Adjustment − made easy.
  • Expanded section on using the powerful Kroll “C” Exhibits to further refine cost of equity capital estimates by gauging how “alike or different” your subject company is compared to the companies that make up the Risk Premium Report’s guideline portfolios.
  • A new “frequently asked questions” (FAQ) section – a quick reference of the most frequently asked questions about the Report.

Publication/Purchasing Information
Published by:

Kroll, LLC
311 South Wacker Drive
Suite 4200
Chicago, IL 60606
+1 312 697 4600

* The Kroll Risk Premium Report is intended to be used as a companion publication to the web-based Kroll Risk Premium Calculator. The online Risk Premium Calculator is available through Business Valuation Resources (BVR) and ValuSource.


1.The Kroll Risk Premium Report is based on a series of articles published by Roger Grabowski and David King, culminating with a seminal 1996 article and a subsequent article in 1999 which together served as the Report's foundation. See: Roger J. Grabowski and David King, "New Evidence on Size Effects and Equity Returns", Business Valuation Review (September 1996, revised March 2000), & Roger J. Grabowski and David King, "New Evidence on Equity Returns and Company Risk", Business Valuation Review (September 1999, revised March 2000).

2.Published as the Standard & Poor's Corporate Value Consulting Risk Premium Report for reports titled 2002 through 2004 and as the PricewaterhouseCoopers Risk Premium Report and the Price Waterhouse Risk Premium Report for reports prior to 2002.

3.For detailed discussion of cost of capital issues see Cost of Capital: Applications and Examples 4th ed. by Shannon Pratt and Roger Grabowski, Wiley (2010).

4.20-year constant maturity Treasury bond yield as of your valuation data. Source: The Board of Governors of the Federal Reserve System.

5.Kroll does not publish IRPs. A source of IRPs is Morningstar's Ibbotson SBBI Valuation Yearbook, (Chicago, Morningstar), Chapter 3, "The Buildup Method", Table 3-5

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