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The asset based approach is defined in the International Glossary of Business Valuation Terms as "a general way of determining a value indication of a business, business ownership interest, or security using one or more methods based on the value of the assets net of liabilities." Any asset-based approach involves an analysis of the economic worth of a company's assets in excess of its outstanding liabilities. Thus, this approach addresses the book value of the Company as stipulated in .
Revenue Ruling 59-60 clearly requires that an income approach be used when it lists "the earning capacity of the company," as a factor to be considered. The income approach is defined in the International Glossary of Business Valuation Terms as, "A general way of determining a value indication of a business, business ownership interest, security, or intangible asset using one or more methods that convert anticipated economic benefits into a present single amount." This method is the most utilized method by analysts for "Going Concerns".
The idea behind the "Market Approach" is that the value of a business can be determined by reference to reasonably comparable guideline companies ("Comps") for which transaction values are known. The values may be known because these companies are publicly traded or because they were recently sold and the terms of the transaction were disclosed. For a business valuation professional, a good set of comps may be as few as two or three – and sometimes no comparable company data can be found. The objective of analyzing these comparable sold companies is to determine if the comparable company has a similar risk profile to the subject company. There are three sources of comparable company transaction data: Public Company Transactions, Private Company Transactions and Prior Transactions of the Subject Company.
