Method comparison with transactions with companies listed

Method comparison with transactions with companies listed

The method is similar to the comparisons with companies listed on the stock market point of view of the selection criteria of comparable companies, the selection of multipliers and possible corrections on the financial statements.
There are significant differences on the following:
1) determining the period for obtaining the most relevant information taking into account the difference between the valuation date and subject company trading data of comparable companies;
2) the need for corrections of market multipliers economic condition if there are differences between the data subject transaction and the valuation date;
3) because firms traded on the whole and not the assets or shares may not be detailed analytical data and forecasts that if companies listed. Small firms not only highlights the economic data for the last year of activity;
4) there may be differences between comparable companies and the subject company relating to the existence of specific clauses that may be included or not transactions. Clauses such consulting agreements, non-competition agreement, etc..
5) The situation in which assets are sold in a company should select as multipliers to reflect the existence of assets. There are situations where some transactions are not included in current assets and any intangible assets, only stocks of materials;
6) in some transactions can be set and certain financing conditions better than market conditions that influence the value of the transaction (cond deferred payment acceptance, acceptance of interest with values ​​lower than the market) clauses that may cause corrections on prices;
7) the value resulting from the evaluation of the subject refers to capital invested, as the company is taken over in its entirety.
General steps to be taken to this method:
a) Establish criteria for selecting comparable transactions and the time interval in which the transactions occurred;
b) Selection of companies that meet the selection criteria;
c) Obtaining financial data of the selected companies;
d) analysis and adjustments of the financial statements of the company subject and the comparables;
e) Making comparisons between the subject and comparable to the extent that there are financial influences traded comparables;
f) inspection of the company subject and selecting multipliers which apply to topic
g) Determination of the relative weight given to each multiplier;
h) Establishing the market value of the company based on multiples selected topic and inf. Why are there;
Errors in applying the market approach:
a) improper selection of firms that do not meet the criteria of credibility;
b) inappropriate use mean or median comparable firm multipliers compared to the subject company;
c) making necessary adjustments to the financial situation of the subject and ignoring corrections on the financial situation of the comparables have to eliminate the financial statements of certain gains or losses from sales of major assets or effects of strikes or judicial processes that affect the financial situation of a company or defects discontinuee assets;
d) assessment of the financial variables than comparables in periods different from the valuation date of the subject, especially in companies with assets cyclical or seasonal;
e) no correction is made in the financial statements on the cash subject in combination with various comparable companies. In this situation there is cash to be ignoring the subject and comparable to either add or subtract certain amounts in the financial situation of the subject;
f) errors can occur if corrections are made for the values ​​the elements included in the price of the subject company transactions (liabilities or current assets other than items included