19 October 2015
A business cannot be valued appropriately without consideration to its environment. Hence to be reliable as a business appraiser due care and attention should be taken to the industry the business competes in. Further detail maybe derived from the sector within such and industry. For example, an architect and builders merchants may be considered to be part of the construction industry but are actually in completely different sectors.
Such a focused approach is more reliable than reviewing the economy as a whole as general trends do not always apply to individual industries or sectors. As the UK economy recovers not all industries achieve equal realisation.
To prepare fully an appraiser should analyse the sector within an industry, comparing the entity to, industry growth prospects (Sales and Margin Growth) and balance sheet position (Quick Ratio, Acid Test, gearing) as tangible comparisons. The appraiser should also review intangible comparatives such as management team and ability (staff turnover, CV’s), product lines (product reviews) and brand strength (customer retentions).
By completing the above, you set the scene for the entity and its environment allowing you to better select the valuation method required.