|By PR Newswire||
|August 8, 2014 02:45 PM EDT||
WOODBURY, N.Y., Aug. 8, 2014 /PRNewswire-iReach/ -- Gettry Marcus CPA, P.C., a leading consulting, tax and business valuation firm, shares how to use comparables in conjunction with the Market Approach to value a business.
The Market Approach is a commonly used approach for valuing a business. The IRS' Revenue Ruling 59-60 states that "the prices of stocks which are traded in volume in a free and active market by informed persons best reflect the consensus of the investing public as to what the future holds for the corporations," but that "when a stock is closely held ... the next best measure may be found in the prices at which the stocks of companies engaged in the same or a similar line of business are selling in a free and open market."
The most important aspect of applying the market approach is to select a sufficient number of market transactions that are sufficiently "similar" to the subject interest to provide a reliable valuation result. The comparables need not be identical to the subject company; that is a goal that is probably impossible to achieve. The Revenue Ruling does not offer guidance on how many comparables are enough, but it is generally thought that a minimum of five or six are enough, if they are "good" comparables. Of course, what makes a comparable "good" is subject to interpretation. If five or six good comparables cannot be identified, the analyst may expand the selection to capture a greater number of comparables, although, by definition, they will be of a lower degree of comparability.
However, the analyst must keep in mind that a higher number of low quality comparables may be just as useless in a valuation engagement as too few good comparables. A careful review of each comparable transaction should be conducted to verify that it is appropriate to include in the analysis. Such a review should include the potential comparable's size, industry description, profitability, and the nature of the acquiring company.
For more information, visit the Gettry Marcus website.
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.Gettry Marcus CPA, P.C. is a top New York City and Long Island CPA firm with offices in Woodbury, Long Island and New York City. We provide accounting, tax, and consulting services to commercial businesses, high net worth individuals and various industries, which include real estate and health care. We have one of the premier and most credentialed forensic accounting, litigation and forensic accounting groups in the New York Area. Our experience in diverse industries and a highly talented and experienced professional staff gives us the ability to share valuable insights into our clients' businesses, to better understand their goals and problems and to help them attain the vision they have for their company.
Gettry Marcus is "Always Looking Deeper" to build value for our clients.
Media Contact: Fayellen Dietchweiler, Gettry Marcus CPA, P.C., 516-364-3390 x 225, [email protected]
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SOURCE Gettry Marcus CPA
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