5.3 Stock Valuation - Market Method

How market participants have valued other comparable businesses is one of the best measures of how much a business would fetch in an arms'-length negotiated transaction.

Valuators and stock trading markets often refer to data on public company acquisitions and trading prices. In valuing a private company, information on comparable private sales or past transactions in the company's shares offer useful points of references.

5.3.1 - Public company ratios

Different aspects of a company's financial performance serve as a surrogate for the business's overall value or price. For many investors, who view earnings as a good indicator of future returns, price is set on the basis of earnings. For some investors, the assets of the company (or book value) or even revenues provide a better measure of future returns. (More 5.3.1>>)

5.3.2 - Comparable private company sales

Using comparable public company sales to value privately-held companies can be misleading. (More 5.3.2>>)

5.3.3 - Valuation in the "new economy"

There has been significant recent discussion about valuing stocks in the high-tech New Economy. How can a company, with no actual earnings and continuing paper losses, be valued at tens of billions of dollars? (More 5.3.3>>)