Gettry Marcus, a Leading Accounting and Business Valuation Firm, Lists Three Fundamental Approaches to Valuing a Business

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Gettry Marcus CPA, P.C. provides information to help individuals understand three different approaches used in a business valuation.

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Gettry Marcus is 'Always Looking Deeper' to build value for our clients.

Gettry Marcus CPA, P.C. discusses three fundamental approaches in valuing a business: the Income Approach, the Market Approach and the Asset Approach. It is up to the business valuator to assess each of these approaches in order to arrive at the one most suitable for the subject company.

"Not all valuation approaches are appropriate in all circumstances; this is often dictated by the date that is available for analysis," says Russ Glazer, CPA, Partner at Gettry Marcus CPA, P.C., and a member of the firm’s Business Valuation and Litigation Services Group.

The application of the Income Approach requires estimates of the future economic benefits to be received by the entity owners, which are based on estimates of the subject company's results of operations. Within the Income Approach are two main valuation methods known as the Capitalized Returns Method and the Discounted Future Returns Method. In order to use either method, the business valuator must be able to estimate future returns and estimate an appropriate rate of return based on the company's risk profile. The Capitalized Returns Method tends to be more appropriate when the company's current operations are indicative of its future operations. The Discounted Future Returns Method is more appropriate when future returns are expected to be substantially different from its current operations.

The Market Approach derives a value for the subject interest by comparing selling prices of similar entities that have been traded in arm's-length transactions. Sale transactions involving similar companies are examined, and the relationships of price to one or more measures of economic income are derived. The two widely used methods using the Market Approach are the Guideline Companies Method and the Private Company Transaction Method. The Guideline Companies Method relies on market transactions of publicly traded securities, while the Private Company Transaction Method examines actual sales of privately held companies.

In the Asset Approach the value of the entity is based on the underlying value of the assets owned by the entity. This approach is useful for entities that hold significant tangible assets, are not labor-intensive and have negligible intangible value. Examples would be real estate and personal holding companies.

In performing a business valuation, Gettry Marcus considers all three approaches. If an approach is not used, it is important to explain why the approach was rejected in valuing the business. In this way, valuation opinions are best suited to withstand scrutiny.

Gettry Marcus CPA, P.C., a top New York City and Long Island CPA firm with offices in Woodbury, Long Island and New York City. We provide accounting, tax, and consulting services to commercial businesses, high net worth individuals and various industries which include Real Estate and Health Care. We have one of the premier and most credentialed Business Valuation, Litigation and Forensic Accounting Groups in the New York Area. Our experience in diverse industries and a highly talented and experienced professional staff gives us the ability to share valuable insights into our clients’ businesses, to better understand their goals and problems and to help them attain the vision they have for their company.

Gettry Marcus is "Always Looking Deeper" to build value for our clients.

Media inquiries: Contact Fayellen Dietchweiler at 516-364-3390 ext. 225 or at fdietchweiler(at)gettrymarcus(dot)com.

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Scott Darrohn
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Fayellen Dietchweiler
Gettry Marcus
516-364-3390 225
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