The Market Approach analyses market transactions involving interests in similar companies to gauge the value of the subject firm. With the advent of private transaction databases such as, Pratts Stats (now Deal Stats), BIZCOMPS, and IBA, the market approach is easier to apply and at times preferred. Revenue Ruling 59-60 specifies: "the best approach to value a security interest is by observing the sales of the same stock as of or near the valuation date. In the absence of arms-length transactions of the subject company's stock, then sales of comparable stocks should be considered. Accordingly, when performing valuations for tax purposes, i.e., gift or estate tax, the valuation professional must consider the Market Approach in his/her valuation report."

Several useful statistical measures can aid the valuation analysis of the market data. An understanding of these statistics can help answer questions about the accuracy of the data, the disparity of the data and what observations could be made regarding the data selected. The following statistics are used in when evaluating market transaction data in business valuation:

SIC Code	Transaction Date	Revenue	Earnings	Sales Price	SP/Rev/ Ratio	P/E Ratio
2511	12/28/20X1	503,912	7,173	122,000	0.24	17.01
2511	5/8/20X1	149,665	8,132	75,000	0.50	9.22
2511	04/30/20X2	3,566	426	1,200	0.34	2.82
2511	10/31/20X1	2,780	295	1,000	0.36	3.39
2511	12/31/20X3	674	75	555	0.82	7.40
2511	3/21/20X3	1,030	129	275	0.27	2.13
2511	9/30/20X2	728	170	450	0.62	2.65
2511	4/3/20X2	200	68	80	0.40	1.18
2511	10/31/20X7	3,702	485	1,325	0.36	2.73
2511	12/11/20X7	235	53	165	0.70	3.11
2511	4/21/20X4	480	144	165	0.34	1.15
2511	10/31/20X3	104	30	108	1.04	3.60
2511	10/31/20X3	376	60	159	0.42	2.65
2511	1/2/20X1	186	56	125	0.67	2.23
2511	11/30/20X4	939	257	850	0.91	3.31
2511	5/10/20X6	1,496	80	169	0.11	2.11
2511	3/31/20X7	2,500	210	2,105	0.84	10.02
2511	11/3/20X8	3,113	481	651	0.21	1.35
2511	11/10/20X3	1,308	N/A	1,500	1.15
Transactions Selected
2511	04/30/20X2	3,566	426	1,200	0.34	2.82
2511	10/31/20X1	2,780	295	1,000	0.36	3.39
2511	10/31/20X7	3,702	485	1,325	0.36	2.73
2511	3/31/20X7	2,500	210	2,105	0.84	10.02
2511	11/3/20X8	3,113	481	651	0.21	1.35
Aruthmetic Mean	3,132	379	1,256	0.42	4.06
Subject Company	$23,415,000	$1,149,000
Enter Subject Revenue or Earnings	$23,415,000
Selected Multiple-SP/Rev Ratio	0.42
Value	$9,881,130
Valuation Adjustment for Excess or Non-Operating Items	$1,149,000
100% Control Value	$8,732,130
Value after First Premium/Discount	N/A
Value after Second Premium/Discount	N/A
Percentage of Ownership Values	100%
Indicated Market Approach Value	$8,732,130
Enter Subject Revenue or Earnings	$23,415,000
Selected Multiple-SP/Rev Ratio	4.06
Value	$95,111,730
Valuation Adjustment for Excess or Non-Operating Items	$1,149,000
100% Control Value	$93,962,730
Value after First Premium/Discount	N/A
Value after Second Premium/Discount	N/A
Percentage of Ownership Values	100%
Indicated Market Approach Value	$93,962,730
Enter Subject Revenue or Earnings	$23,415,000
Selected Multiple-SP/Rev Ratio	11.90%
Value	$2,786,385
Valuation Adjustment for Excess or Non-Operating Items	$1,149,000
100% Control Value	$3,935,385
Value after First Premium/Discount	N/A
Value after Second Premium/Discount	N/A
Percentage of Ownership Values	100%
Indicated Market Approach Value	$3,935,385

If you consider the huge disparity between the market methods, what inferences can you make? Consider this in your answer:

	SP/Rev	P/E Ratio
Enter Subject Revenue or Earnings	23,415,000	1,149,500
Selected Multiple	0.36	7.1
Value	8,429,400	8,161,450
Valuation Adjustment for Excess or Non Operating Items
100% Control Value	8,429,400	8,161,450
0	0	0
Value after First Premium / Discount	8,429,400	8,161,450
0	0	0
Value after Second Premium / Discount	8,429,400	8,161,450
Percentage of Ownership Valued	1	1
Indicated Market Approach Value	8,429,400	8,161,450