Certified Valuation Analyst Market Approach and Comparable Analysis

Question 1

What is the guideline public company method?

Accepted Answer

Valuing a subject company using pricing multiples derived from publicly traded comparable companies

Answer

The guideline public company method identifies publicly traded companies similar to the subject in industry, size, and risk, derives valuation multiples (price/earnings, EV/EBITDA), and applies them to the subject company's financial metrics.

Question 2

What factors should be considered when selecting guideline comparable companies?

Accepted Answer

Industry, size, growth rate, profitability, risk profile, and geographic market

Answer

Comparable selection considers industry classification, company size (revenue, assets), growth rates, profitability margins, capital structure, risk factors, market served, and product/service mix to ensure meaningful comparisons.

Question 3

What is the merger and acquisition (M&A) transaction method?

Accepted Answer

Valuing a company using pricing multiples from actual sales of comparable companies

Answer

The M&A transaction method uses pricing data from actual completed acquisitions of similar companies, deriving multiples that reflect prices actually paid, including any control premiums, to estimate the subject's value.

Question 4

What is an EV/EBITDA multiple and why is it commonly used?

Accepted Answer

Enterprise value divided by earnings before interest, taxes, depreciation, and amortization — it's capital structure-neutral

Answer

EV/EBITDA compares total enterprise value to operating cash flow proxy (EBITDA), making it capital structure-neutral (unaffected by debt levels), depreciation-policy-neutral, and useful for comparing companies with different leverage and tax situations.

Question 5

What adjustments may be needed when applying public company multiples to a private company?

Accepted Answer

Discounts for lack of marketability, size adjustments, and consideration of company-specific risk differences

Answer

Private companies typically require discounts for lack of marketability, adjustments for size differences, and consideration of company-specific factors (customer concentration, management depth) that differ from public company characteristics.

Certified Valuation Analyst Practice Test

Certified Valuation Analyst Practice Test

Certified Valuation Analyst Market Approach and Comparable Analysis