Guideline Companies in Valuation: The Economist's View of the Market Approach

Mon Oct 13 16:24:38 EDT 2008
By Dr. David Tabak

One of the standard methods of valuation is termed the market approach. This method generally involves finding a representative multiple of value to a financial measure from a set of guideline (or peer or comparable) companies and applying that multiple to the financial measure of the company being valued. While there are many circumstances in which the market approach works well, economists recognize that there may be market conditions under which particular care is needed in applying the method. In this paper, NERA Senior Vice President Dr. David Tabak provides an overview of those types of situations and shows how a careful approach to the market method can yield more defensible valuations that are also more in line with the Daubert criteria for expert testimony.