Market approach method

Market approach method

Student: Ximena Alexandra Florez Reyes

Group: 212032-58

april 2024

CONCEPT

The market approach method is one of the three primary approaches used in business valuation, alongside the income approach and the asset-based approach. The market approach method determines the value of a business by comparing it to similar businesses that have recently been sold or are publicly traded. This method is based on the principle of substitution, which assumes that a knowledgeable buyer would not pay more for a business than the cost to obtain a similar one.

Market approach method

The market approach method uses valuation multiples derived from comparable companies or transactions to estimate the value of the business being valued. Here are the basic mathematical formulas used in the market approach method:For Comparable Companies (Publicly Traded)Price-to-Earnings (P/E) Multiple: Business Value=Earnings of the Business×P/E MultipleP/E Multiple= Earnings per Share of Comparable Company / Price per Share of Comparable CompanyFor Comparable Transactions (Private Companies)Transaction Value Multiple:Business Value=Financial Metric of the Business×Transaction Value MultipleTransaction Value Multiple= Financial Metric of Comparable Company / Transaction Value of Comparable Company ​

MATHEMATICAL FORMULAS FOR CALCULATINE VALUE

HOW CAN COMPANIES CREATE VALUE FROM THEIR INNOVATION?

Creating value from innovation is crucial for companies to maintain a competitive edge and drive growth. The market approach method can be used to value the impact of innovation by comparing the company to similar innovative companies in the market. Here’s how companies can create value from their innovation using the market approach method