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In other types of Appraisals, mainly real estate, the market data approach indisputably will always yield the most accurate results.  It is a true representation of the current marketplace because it is what the market is paying for the same or similar asset.  In the case of a Business, using public or private comparable sales price-to-earnings or income-to-sales ratios require close attention to the factors that make the comparison realistic which are:

     Comparing Similar Business Types, sales levels, discretionary earnings and asset


The comparison starts with a similar Business type.

Comparing Business sales levels that are as similar as possible to the Business being Appraised.

Using a comparison of Discretionary Earnings -- profit on the tax return means very little -- the sum of all the add backs will determine Discretionary Earnings and that is the number the Business Appraiser looks to compare.  (Some comparables use Discretionary Cash Flow as well)  None use tax return profit.

The Business Appraiser also must compare the asset values of the Comparables               

and use the comparables that most closely compare to the Business being    


The market data approach can be very useful when analyzing data drawn from the market as to what types of ROI (return of investment) ratios are customary, or data based on Price-to-Earning ratios that buyers are willing to pay in order to purchase a certain type of Business.