No Good Comps? 3 Better Ways to Business Valuation.

Are you ready to value your business?

The Guideline Public Company method is a technique used to value a company based on the pricing multiples for similar companies (“Comps”).

What if there are no good Comps to use during your company valuation?

Comparing the size and scope of operations between companies is challenging. Problems with comparability arise when a company is atypical and operates in a niche segment offering unique products and services.

Here are three ways to value your company.

Cost approach

The cost approach to valuation is also known as the asset-based approach.

This approach involves understanding a company’s value through determining the market value of its assets. The cost approach serves as a floor to the valuation because a company’s assets are usually worth more while the company is running than if the company closes and liquidates its assets.

If your company is asset-intensive, however, this may be a better valuation technique with no need for a comparable analysis.

Market approach using transactions

Instead of Comps, a business may be valued using transaction data.

This method is also known as the Guideline Transaction method. It can include both private and public company transactions.

The valuation measure of companies sold can be a good proxy for a specific company. In certain industries, there are:

  • Large numbers of similar transactions
  • Many transactions occurring within a similar geographic region
  • Recently occurring transactions

Of course, this method is very dependent upon the transaction structure. Factors such as cash vs. debt, contingent earn outs, non-competition agreements, and employment agreements impact valuation. Given these, selecting the appropriate transaction multiple to apply to the subject company must be done carefully.

Discounted cash flow

An income approach converts future expected economic benefits to a present dollar amount.

Within this technique, a company’s after-tax cash flows are adjusted for changes in working capital, capital expenditures and outside capital needs. The most common methods used are Single Period Capitalization and Multi-Period Capitalization.

A Multi-Period Capitalization provides the greatest flexibility and is particularly useful for valuing high growth businesses.

On the other hand, a Single Period Capitalization of earnings often applies to established businesses with stable earnings.

The adjusted after-tax cash flows are then discounted to the present by a discount rate that is proportionate with the risk of investing in the subject company.

With so many different ways to value a company, the lack of close, peer company comparables is not a barrier to a good, comprehensive business valuation. Working closely with your valuation partner is the best way to get the most accurate assessment of your company.

If you need help understanding the value of your business, Quist Valuation can help. Let’s set a time for a free 30-minute consultation. We can discuss the specifics of your business and identify areas to focus on as you progress along the path of increased value for your business.

Schedule your free 30-minute consultation here.

Quist Valuation

Quist Valuation was founded in 1984 and is a leading independent business valuation and securities analysis firm.


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