Selecting guideline companies in a volatile market

Description

Abstract: When valuation professionals appraise a business using the market approach, they rely heavily on data from comparable or “guideline” companies. Selecting appropriate guideline companies is always important in preventing over- or undervaluation, and this selection is based on the type of business being appraised. The market approach can be effective in times of general economic stability, but when the value of companies falls dramatically and the economic future is uncertain, guideline company data can be less reliable.