What is a market approach to valuation?
A market-based approach typically compares a company’s financial performance against its public company counterparts. Often multiples from acquisitions of similar businesses or stock prices of comparable publicly traded companies are used in the comparative analysis to derive value. The market approach to valuation is based on the principal of substitution, namely that one will pay no more for an item than the cost of acquiring an equally desirable substitute. Thus, the value is determined based on prices that have been paid for similar items in the relevant marketplace.
