MV Approach Summary

SUMMARY: MARKET APPROACH VALUATION
 Follows the concept that the value of the business can be determined by
reference to reasonably comparable guideline companies for which
transaction values are known.
 Typically used in professional business appraisals (comparative
transaction method/comparative private company sale data method,
guideline publicly traded company method and use of expert opinions or
professional practitioners).
 Easy to grasp and straightforward.
Categories:
 Empirical/Statistical Approach
- Uses research and database processing in order to come up
with conclusion and recommendation.
- Requires references and evidence to support the
determination and evaluation.
- Information’s: Sales Data, financial performance, other historical
information
- Trend analysis and benchmarking – may be used to process the
info.
1. Comparative Private Company Sales Data

- formerly known as comparative transaction method;
guideline transaction method or comparative business
sales data.
- involves finding out prior transactions of comparable
companies.
- Most widely used publications available on the internet:
Institute of Business Appraisers, BIZCOMPS, Pratt’s Stats,
Done Deal, Mid Market Comps(ValueSource), Mergerstat)
- Definition of value, size of the company being valued &
magnitude of the valuation stake (majority or minority)
- A majority stake in a large well-established company
should be valued relative to either (a) a prior transaction
or (b) guideline transactions.
- A minority stake should be valued using the guideline
company method after proper discounts and adjustments.
- Advantage: source data is reliable and comparable.
- Limitation: insufficient market evidence; require careful
data selection, analysis and consistent data reporting
standards
2. Guideline Public Company Data
- Identifying comparable company and obtaining the stock
price for the company’s listed securities.
- PLCs are required to file their FS electronically with the
SEC; these filing are public information and are available
on the SEC website, also in PSE.
- Advantage: availability of large set of recent data
- Limitation: comparison to small businesses may not be as
relevant
3. Prior Transactions Method
- looking up historical transactions in securities of the
business under valuation.
Advantage: it is already a good reference for valuation, if
-
the data is available.
- Limitation: since this is reliant heavily on the data,
absence of a good data may not enable this approach to
produce reliable results.
 Comparable Company Analysis
A technique that uses relevant drivers for growth and performance that
can be used as proxy to set a reasonable estimate for the value of an
asset or investment prospective.
o Financial ratios – are used as tools to assess and analyze business
results.
o Ratios or multiples are useful tools for doing comparative company
analysis.
o Advantage: it creates better and relevant comparison knowing that
opportunities or investments have distinct drivers of their
performance.
o Factors to be considered in determining the value using CCA:
 Comparators must be at least with the similar operations or
in the similar industry
 Total or absolute values should not be compared
 Variables used in determining the ratios must be the same
 Period of observation must be comparable
 Non-quantitative factors must also be considered
Price-Earnings Ratio – represents the relationship of the MV per

share and the EPS; sends signals on how much the market perceives
the value of the company as compared to what it actually earns. (P/E
Multiples or Price Multiples)
P/E Ratio = MV per share/EPS
Book-to-Market Ratio – used to determine the appreciation of the

market to the value of the company as compared to the value it
reported under its SFP. Limitation: certain values incorporated do not
represent the true value of the company.
Book-to-Market Ratio = Net Book Value/Market value per shares

Book Value per share = Net Book Value/No. of Outstanding Ordinary
Shares
Net Book Value = Total Assets – Total Liabilities
Dividend-yield Ratio – describes the relationship between dividends

received per share and the appreciation of the market on the price of
the company; also known as Dividend multiple; provides investors with
the value which they can actually get from the company.
Dividend-yield ratio = Dividend per share/ Market Value per share
EBITDA Multiple – represents the net amount of revenue after

deducting operating expenses and before deducting financial fixed
costs, taxes, and non-cash expenses.
EBITDA Multiple = Market Value per share/EBITDA Per share

EBITDA per share = EBITDA/Outstanding Ordinary Share
o Comparable company analysis uses tools to enable the

comparison between companies given the differences in 3S –
Strategy, Structure and Size.
 Heuristic Pricing Rules Method – analysts use business pricing

formulas that are developed based on the expert opinion of professionals
involved in business deals.
Advantage: pricing multiples based on the expert opinion of active market
participants is made available; pricing formulas are often relied upon both
by practitioners and their client business owners and buyers when pricing
a deal.
Limitations: May not be sufficiently backed by rigorous statistical analysis;
availability of information for non-brokered business deals.

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SUMMARY: MARKET APPROACH VALUATION

1. Comparative Private Company Sales Data

Price-Earnings Ratio – represents the relationship of the MV per

P/E Ratio = MV per share/EPS

Book-to-Market Ratio – used to determine the appreciation of the

Book-to-Market Ratio = Net Book Value/Market value per shares

Dividend-yield Ratio – describes the relationship between dividends

Dividend-yield ratio = Dividend per share/ Market Value per share

EBITDA Multiple – represents the net amount of revenue after

EBITDA Multiple = Market Value per share/EBITDA Per share

o Comparable company analysis uses tools to enable the

 Heuristic Pricing Rules Method – analysts use business pricing

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