Page 207 - CFF

Market approach

• The market approach estimates the unobservable price of an asset based on

the observable price of comparable assets.

• Empirical evidence is used to determine pricing benchmarks of comparable

assets.

• In contrast, the income approach uses indirect empirical evidence and a

priori theory.

• When observing prices of assets of different sizes, scaled prices may be

used.

• Price-to-earnings (P/E) ratios are the most recognizable kind of scaled price.

9 9 © 2019 Association of International Certified Professional Accountants. All rights reserved.