The value-based management skill is one of the main components of successful doing business today. Owners and managers should know whether their company is able to enhance value with the existing organisation structure. However, the concept of value makes sense only if it is possible to estimate it. Valuation specialists consider that a valuation of a financial institution can be undertaken mainly using earnings-based methods, in particular discount cash flow method (DCF) that requires the necessity of measuring the cost of equity. Capital assets pricing model (CAPM) is the most often applied method for the calculation the cost of equity that is described in the scientific publications of many financial experts. However, applying this model in Latvian market we are faced the significant challenges. To avoid the problems related to the application of CAPM, the author suggest using the alternative variant for the estimation of cost of equity – build-up model. The author’s recommendations regarding to appraisal the cost of equity can be used in any country with undeveloped stock market, and/or in case, if company’s shares are not quoted.