Join Jim Stice for an in-depth discussion in this video Market approach, part of Finance Foundations: Business Valuation.
- The three primary asset valuation techniques…are the market approach, the income approach,…and the cost approach.…The market approach uses data from market prices…for identical or similar assets.…For example, in determining the fair value…of a share of stock, you should look…at the recent selling price of similar shares of stock.…And because all ownership shares…for the same company are identical,…the recent selling price of any share…gives a good indication of the fair value…of all of the other shares.…The market approach works very well, perfectly, in fact,…for actively traded public shares…in the leading stock exchanges around the world.…
For example, as of the close of trading on Friday,…October 30, 2015, the quoted price for a share…of Microsoft stock was $52.64.…That is a very good estimate of the fair value…of that asset on that date.…A difficulty in using the market approach…to valuing shares arises for nonpublic companies.…For example, in October 2015, the Wall Street Journal…reported a large divergence in analyst opinion…
Make sure to check out the Stice brothers' other accounting and finance courses to understand the other economic factors that impact your business.
Lynda.com is a PMI Registered Education Provider. This course qualifies for professional development units (PDUs). To view the activity and PDU details for this course, click here.
The PMI Registered Education Provider logo is a registered mark of the Project Management Institute, Inc.
- Using market, cost, and income approaches to business valuation
- Valuing homes
- Valuing companies by multiples
- Using price-to-sales ratios to value companies
- Using discounted cash-flow analysis to estimate value
- Valuing McDonald's as a case study