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Comparison is a basic skill for a valuation. One of the main approaches, the market approach, uses comparable data to provide a general value indication by comparing the subject with similar assets whose value has been realised. The market approach normally involves obtaining market values, or value indicators, for comparable assets. This can include calculating multiples on performance measures such as revenue, operating profit, or EBITDA which can then be used to calculate an indicative value of the subject.
For example, trading multiples can be calculated for comparable publicly listed companies whilst transaction multiples can be calculated on the acquisition of comparable companies. Trading and transaction multiples for listed companies are obtainable from a number of financial information providers. Other information can be obtained from disclosure within filed accounts, regulatory reports, press releases and corporate websites. In addition many businesses will have information on transactions with or between third parties that can be used for comparison.
However, it can be difficult to identify transactions and subjects that are closely comparable due to, for example: differences in market share; growth rates; maturity levels; and products or services offered. In addition full information is often not publicly available and, where it is available, it can be difficult to confirm the reliability of such information. Even where companies are similar, different accounting policies can result in divergent multiples, for example.
Intangible Business’s team of qualified accountants, marketers and valuers are experienced in making such comparisons to ensure that they are as well-informed as practicable.
In response to businesses transferring IP to minimise group tax liabilities or migrating IP to more favourable tax jurisdictions, tax authorities are increasingly challenging transfer pricing structures on the grounds of tax avoidance and profit diversion. Our team are experienced in identifying and evaluating comparable uncontrolled transactions, on which to determine transfer pricing structures which adhere to the arm’s length principle required by tax authorities.
If you have any questions, or would like us to reserach and analyse comparable data for you, please call Stuart Whitwell or send him an email.