The National Directory of Certified Public Accountants

Ask A CPA - Buying & Selling a Business

Within The Many Business Valuation Methods , What Is The Comparable Or Guideline Company Approach ?

The Comparable or Guideline Company Approach is a method that the appraiser collects data on recent sales of similar companies and calculates the valuation multiples such as the price to earnings, price to revenue, price to cash flow. It is assumed the valuation multiples derived inherently represent the financial markets expectations of future earnings and assessments of future risk. The appraiser reviews the multiples to determine which ones are applicable to the subject entity. The guideline entity used in the final valuation analysis must bear some very similar behavioral characteristics as those of the subject entity. Speak to your local CPA or business broker for more information about valuing a business and on your pending purchase or sale.

If you need professional help with "Buying & Selling a Business" or have other tax questions, we can help you find a local licensed CPA for a free, no-obligation consultation.