Business Values List
Do Your Own business valuation – Part 6: Market-Based Valuation Methods
There are 3 approaches to valuing a business – market, income and asset. This article covers the market approach.
Preferred Approach
A market-based valuation is preferred by most appraisers and users because it relates directly to the actual sale of a similar property. There is no better evidence of value than an actual transaction, but it must be comparable. That is a major weakness for applying the market approach to a small company. It is difficult, if not impossible, to find comparable transactions.
Public Companies
Every day millions of shares of stock in large companies are freely traded on major exchanges like the New York Stock Exchange (NYSE). It should be the ideal source of market data for the sale of a company, but is buying shares of a public company comparable to buying a small business? The answer is no for a number of reasons. For professionals that believe comparable public companies exist, there is the guideline public company method. A single company or group of companies is identified as comparable and adjusted to increase comparability. The most appropriate pricing multiples are selected and applied to the company being valued.
Private Companies
Due to the differences between public and private companies, data from the actual sales of private companies would seem like a better alternative. The primary problem is that these sales are private transactions that are not reported publicly. There are several commercial databases that collect this information from various sources. The available data is from a small portion of the total transactions and a limited amount of information for each transaction is available. Under these conditions finding one reasonably comparable transaction is virtually impossible. Typically transactions within an industry group are used to provide an average multiple that is applied to the company being valued.
The most commonly used multiples from these databases are a percentage of annual revenue, and a multiple of sellers’ discretionary earnings (SDE). SDE is the earnings of a business excluding the following items: income taxes, non-recurring items, non-operating items, depreciation, amortization, interest income, interest expense, and the total compensation (including benefits) for one owner.
The two primary databases of private transactions are BIZCOMPS and Pratt’s Stats. These databases are available by subscription or for single searches at www.bvmarketdata.com. BIZCOMPS contains over 11,000 transactions involving companies with average annual sales of $393,000. Pratt’s Stats contains over 13,000 transactions involving companies with average annual sales of $1.06 million. The cost to search these databases one time is $129 and $199, respectively. The information about these databases is accurate as of May 2009. Your CPA may subscribe to one or both of these databases and may be willing to do a search for you for a minimal fee.
Because the data is limited and of questionable comparability, methods based on it are often used only to support or justify the conclusions reached using other valuation methods.
Industry Rules of Thumb
Some industries have formulas that are widely used to determine business value, often called rules of thumb. Rules of thumb are typically expressed as a range of multiples that are applied to sales or earnings. One of the most extensive listings of these formulas is published in an annual business reference guide from business brokerage press. You may also be able to find rules for your industry from a trade group or association.
Although these rules are purportedly based on actual transactions, there is no way to substantiate the rules or verify the data. So they are best suited for quick and dirty estimates.
Summary
In a perfect world the market-based approach would be the most widely used valuation method. Because of the incompatibility of public company data and the lack of quality, comparable private company information, the market-based approach is often relegated to playing just a supporting role.
About the Author
David Coffman recently published the
Do-It-Yourself Business Valuation Workbook.
David is a Certified Public Accountant who is Accredited in Business Valuation (ABV), Certified in Financial Forensics (CFF), and a Certified Valuation Analyst (CVA). His firm,
Business Valuations & Strategies,
offers
low-cost business valuations
ten points up for grabs!!!!!!?
list six parts of the business value chain
thanx
Six Business Functions of the Value Chain:
1. Research and Development
2. Design of Products, Services, or Processes
3. Production
4. Marketing
5. Distribution
6. Customer Service
Build your MLM business online by Branding YOU as a Leader – #1 way our Marketing System Helps YOU!
|
|
BUNN 12-Cup Commercial Coffee Filters, 250-count $3.00 For Bunn, Regal, Mr. Coffee and other popular drip coffee makers as well as commercial brewers…. |
|
|
Bachman-Turner Overdrive II $2.25 No Description AvailableNo Track Information AvailableMedia Type: CDArtist: BACHMAN-TURNER OVERDRIVETitle: BTO IIStreet Release Date: 02/21/2006… |
|
|
Chuck Berry (Chess Box) $28.79 We may not know who wrote the book of love, but the author of the rock & roll dictionary was Charles Edward “Chuck” Berry. You’ve got a signature guitar riff that other giants (think Rolling Stones) have based entire careers on. Songs such as “School Day” told teen tales as though they were novels. “Too Much Monkey Business” in where Bob Dylan discovered poetry and rap music found a contemporary s… |
|
|
Complete Recordings $31.98 … |
|
|
Belkin 12-Outlet Home/Office Surge Protector with Phone/Ethernet/Coaxial Protection and Extended Cord $18.79 SAFETY COVERS FOR OUTLETSSLIM DESIGN FOR COMPACT STORAGEORGANIZES CABLES WITH DETACHABLE CORD MANAGEMENT CLIPFLAT-PROFILE PLUG12 OUTLETS1-IN/2-OUT TELEPHONE/MODEM PROTECTION RJ45 & COAXIAL PROTECTION3960 JOULES10-FT EXTENDED CORDLIFETIME PRODUCT WARRANTY$300000 CONNECTED EQUIPMENT WARRANTYUPC : 722868594339Shipping Dimensions : 15.00in X 6.50in X 2.25inEstimated Shipping Weight : 2.4313… |
|
|
3M 8511 Particulate Sanding Respirator N95 with Valve, 10-Pack $13.05 Uniquely designed to help provide comfortable, reliable worker protection. Ideally suited for work settings that involve heat, humidity or long periods of wear. Workplace applications include grinding, sanding, sweeping, bagging and other dusty/hot operations. Features the 3M Cool Flow Exhalation Valve and adjustable M-noseclip to help provide a custom fit and secure seal…. |
|
|
Kidde 21005779 Pro 210 Fire Extinguisher, ABC, 160CI $42.95 Pro/Commercial 210 Fire Extinguisher, UL Rated, 2-A:10-B:C, Suitable For Common Industrial Use Office, Schools, Hotels, Metal Handles, Levers & Valve, Fully Rechargeable, High Quality Gauge For Easy Pressure Check, 6 Year Limited Warranty, Low Hazards…. |
|
|
Looney Tunes: Golden Collection, Vol. 2 $13.98 Direct from Termite Terrace, it’s 60 more classic Looney Tunes and Merrie Melodies! This four-disc set offers animation fans installments with Bugs Bunny (”The Big Snooze,” “Hare Conditioned,” “Slick Hare,” “Baby Buggy Bunny,” and more); the Road Runner and friends (”Beep, Beep,” “Gee Whiz-z-z-z-z-z-z,” “The Dover Boys,” “Mouse Wreckers,” and more); Tweety and Sylvester and friends (”Bad Ol’ Puddy… |
|
|
The Family Man $1.99 Jack Campbell (Nicolas Cage) is the quintessential Wall Street shark, scoring killer deals by day and shallow escort sex by night. His round-the-clock routine of empty luxuries is disturbed one lonely Christmas Eve when a gun-packing punk (Don Cheadle)–perhaps an angel of mercy–responds to an altruistic gesture from Jack by giving him “a glimpse” of the life he could have had. Could have, t… |
|
|
Duck Dynasty: Season 1 – Sneak Peek … |
|
|
List of Mak and Bat Values 1995 $129.35 This book is in Good Used condition |
|
|
List of MAK and BAT Values 2007 $123.5 This book is in New – Excellent condition |
|
|
American Business Values $95.55 No Synopsis Available |
|
|
Business Ethics and Values $98.77 This book is in Used condition |
|
|
Values-driven Business $11.21 This book is in New – Excellent condition |
|
|
Values $17.99 Values – Art Print |
|
|
Green Business, Green Values, and Sustainability $126.19 No Synopsis Available |
|
|
American Business Values: A Global Perspective $16 No Synopsis Available |
|
|
Business Ethics : An Introduction to Business Values for a Pluralist Society $17.55 No Synopsis Available |
|
|
List of MAK and BAT Values 2009: Maximum Concentrations and Biological Tolerance Values at the Workplace. Report 45 $119.44 No Synopsis Available |
|
|
List of Mak and Bat Values 2011: Maximum Concentrations and Biological Tolerance Values at the Workplace. Report 47 $121.88 No Synopsis Available |
|
|
Power of Many : Values for Success in Business and in Life $12.49 No Synopsis Available |
|
|
Business Ethics and Values: Individual, Corporate and International Perspectives $85.04 No Synopsis Available |
|
|
Culture and Economics : On Values, Economics and International Business $66.83 No Synopsis Available |
|
|
True to Yourself : Leading a Values-Based Business $14.12 No Synopsis Available |
|
|
Economic Imperatives and Ethical Values in Global Business $75.37 This book is in Acceptable condition |
|
|
Business Ethics and Values, by Fisher, 2nd Edition $50.12 This book is in New – Excellent condition |
