IRC 409A Common Stock Valuation
This free, guided checker walks your team through the key decision points for IRC 409A Common Stock Valuation. Answer a few questions to see the likely approach and the evidence to document.
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Market Approach: Guideline Company and Transaction Methods
This free, guided checker walks your team through the key decision points for Market Approach: Guideline Company and Transaction Methods. Answer a few questions to see the likely approach and the evidence to document.
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This tool is a high-level valuation screening aid for general information only and is not a valuation, appraisal, accounting, tax or legal opinion. A defensible conclusion of value requires a qualified valuation specialist applying professional standards to entity-specific evidence.
The questions this tool walks you through
Here is what the checker asks and why each step matters. Prefer to talk it through? Contact us and we will help directly.
Is there reliable market pricing evidence available - from comparable public companies, completed comparable-company transactions, or recent arm's-length sales of the subject's own interest - sufficient to develop a market-approach indication?
The market approach draws on comparable public companies, completed comparable-company transactions, or recent arm's-length sales of the subject's own interest, each with observable prices measured on a consistent basis. Count the usable evidence, test recency, and confirm it is arm's-length; a thin, stale, or non-arm's-length set produces indications too unreliable to weight, and the formula method is only a fallback of last resort.
Conclude the market approach is not supportable; develop the income or asset approach and reserve the formula method only as a last resort under Rev. Rul. 68-609.
Official guidance: International Valuation Standards
What is the primary source of pricing evidence you will rely on for the market approach?
Identify which market data source drives the indication, because each carries a different implied level of value: public shares are non-controlling and marketable, whole-company transactions are control and may include synergies, and prior sales of the subject's own interest are direct but must be arm's-length. Naming the source now determines the control and marketability adjustments needed later.
Develop guideline public company multiples at a marketable, non-controlling level of value. Develop guideline transaction multiples at a control level and scrutinize any embedded acquirer synergies. Test the prior subject-interest transactions for recency and arm's-length character before relying on them.
Official guidance: International Valuation Standards
Were the prior transactions in the subject's own interest recent, arm's-length, and free of compulsion or a special relationship between the parties?
Prior sales of the subject's own interest can be the strongest single piece of evidence, but only if they are recent, negotiated at arm's-length, and untainted by compulsion or family and controlled-party relationships. Document the date, parties, terms, and any changed circumstances since the transaction; unreliable prior sales are set aside rather than adjusted.
Weight the prior arm's-length transactions in the subject interest as direct evidence at the level of value actually transacted. Set aside the unreliable prior sales and screen guideline companies or transactions instead.
Official guidance: International Valuation Standards
After screening candidates on line of business, size, growth, profitability, leverage, and risk profile, are they sufficiently comparable to serve as valuation guidelines for the subject?
Comparability is screened first on the same or a similar line of business, then refined for size, growth, profitability, capital structure, and risk. Document the inclusion and exclusion reason for each candidate; a set that is comparable only by a broad industry code, without similar economics, cannot carry a primary market-approach conclusion.
Treat the market approach as corroboration only and weight the income or asset approach for the primary indication.
Official guidance: International Valuation Standards
Can the pricing differences between the comparables and the subject be bridged with supportable, quantifiable adjustments, rather than signaling that the comparables are fundamentally different?
Selected multiples are adjusted for measurable differences in growth, size, profitability, and risk, and outliers are examined rather than blindly averaged. If bridging the subject to the comparables requires adjustments larger than the multiples themselves, that is evidence the set is not genuinely comparable and should not drive the conclusion of value.
Treat the market approach as corroboration only because the required adjustments exceed what the comparables can reliably support.
Official guidance: International Valuation Standards
Which valuation multiple will you emphasize, matched to the subject's economics and the normalized metric?
Multiple selection follows the subject's economics: earnings multiples for profitable operators, revenue multiples for pre-profit companies, asset multiples for balance-sheet-driven businesses, and sector units only as corroboration. Always pair the multiple's numerator with the correct metric so enterprise-to-enterprise and equity-to-equity relationships hold, and normalize the subject metric for non-recurring, non-operating, and related-party items on the same basis the comparables were measured.
Apply the earnings or cash-flow multiple to the normalized subject metric on a matching enterprise or equity basis. Apply the revenue multiple and separately address margin differences versus the comparables. Apply the asset or invested-capital multiple consistent with the standard and premise of value. Use the sector unit multiple only to corroborate a financial-multiple indication.
Official guidance: International Valuation Standards
Do the multiples you will apply come from whole-company acquisitions (a control level of value), rather than from freely traded minority shares (a marketable, non-controlling level)?
The data source fixes the level of value of the raw indication: public-share multiples are marketable and non-controlling, whereas acquisition multiples are controlling and can embed buyer-specific synergies. Identify the gap between that implied level and the level your assignment requires, because closing it with a control premium, a lack-of-control discount, or a marketability discount is where market-approach conclusions most often go wrong.
Conclude a control-level market indication and eliminate non-market synergies before conforming to the standard and level of value. Conclude a marketable, non-controlling market indication and adjust for control and marketability to reach the required level of value.
Official guidance: International Valuation Standards
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