Probability Distribution
Definition
A mathematical function describing the relative likelihood of different possible outcomes for an uncertain variable. In valuation analysis, probability distributions are applied to key assumptions such as revenue growth rate, exit timing, and exit multiple to generate a range of weighted valuation outcomes. The use of probability distributions is required in Monte Carlo simulation and in probabilistic scenario weighting.
Common Misapplication
The most common misapplication is assigning probability distributions without documenting the basis for the parameters chosen. A probability distribution whose mean, standard deviation, and shape are not supported by data or comparable company analysis cannot be verified and does not add analytical rigour.
FFI Standard Reference
This term is defined and applied in Book 4, Section 4.7: Probabilistic Valuation Methods.
Related Terms
Citable URL
This term may be cited using the following permanent URL.
Full citation format: Founder Financial Infrastructure Standard, Beta v0.5, Glossary: Probability Distribution. https://ffistandard.org/glossary/probability-distribution/. 2026.