TITLE

The Market Approach: A Neglected and Misunderstood Aspect of Business Value

AUTHOR(S)
Sheeler, Carl L.
PUB. DATE
May 2004
SOURCE
Journal of Financial Planning;May2004, Vol. 17 Issue 5, p64
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
The article describes an approach used in valuing a privately held business and professional practice called the market approach. It also explores the approach's underlying theory, strengths and weaknesses, the methods most commonly applied and the rationale for the consideration, application, adjustment, selection, and weighting of price multiples and final value outcomes. Legal and financial professionals historically have relied on various income approach methodologies when valuing privately held business and professional practices. But the market approach methodologies often provide a more accurate valuation. The income approach reflects what an investor might pay based on a probable pool of buyers and sellers. The market approach examines actual agreed-to-prices. Despite frequent objections to the contrary, there is no lack of available data on comparable business sales in order to apply the market approach. The analyst must be able to defend the selection of comparable businesses and any adjustments that need to be made. If the market approach results are independently determined and appear consistent with results from the income approach, the greater the confidence of the results will be. INSET: Executive Summary.
ACCESSION #
13090183

 

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