“There are several critical steps in applying the market approach that will lead to unreliable results if they are not performed properly,” says the ABA in a new article specifically geared to new litigators: A Primer on the Market Approach to Business Valuation. To assess the use of “real transactions and stock prices,” a young lawyer should pay close attention to the expert’s:
- Selection of comparable companies;
- Adjustment of the comparables’ financial statements;
- Selection and calculation of multiples; and
- Support from other valuation approaches.
Oh, it’s good to start them young. “It is critical that the approach and underlying assumptions in a damages claim are consistent with the facts and circumstances in the case,” the ABA advises its fledgling attorneys. “A market approach may be the most appropriate way to quantify damages; however, the opinion of the expert can be subject to exclusion under a Daubert challenge if not applied correctly and appropriately supported.”
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