Market Approach

The market approach to business valuation involves valuing a company by reference to what other similar companies or interests in companies have sold for relative to some fundamental variable in the subject company, such as sales, net income, EBITDA (earnings before interest, taxes, depreciation and amortization), EBIT (earnings before interest and taxes), etc.

Several transaction databases are available that provide details of sales of private companies (e.g., Pratt's Stats, BIZCOMPS, Done Deals). Using the databases, "pricing multiples" such as price/sales or price/net income, are developed and applied to the subject company's comparable fundamental to arrive at a range of potential values.

Such pricing multiples may also be developed from the market prices of public companies when appropriate. Under this approach, publicly available data concerning the public companies market value of equity and/or debt is used in developing the pricing multiples.