There are several business financial attributes required for EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) to work well as a basis for the multiple of earnings method (the method used with the Market Comparable Valuation Approach); see Fair Market Value for a better understanding of the three primary business valuation approaches.
Fair Market Value
Fair market value (FMV) is the price a reasonable person with all the pertinent knowledge would pay for a particular product/service or ownership rights of a business. Fair market value is commonly used in the real estate industry, but it is much broader. Anytime there are many buyers for a product, the buyers set the fair market value. Limited buyers for a product creates questionable value.
This article will illustrate the opposite effect using the same business information. A buyer of a business should be leery of financial information and look for improper accounting processes. The goal is to reduce the operational income and ultimately the value of the business. The goal is to get the business valuation to a realistic number.