New Jersey Forensic Accountant Explains Relative Valuation

New Jersey business valuations accountant Robert A. Bonavito, CPA, discusses relative valuation and the way it is used to value companies. In the relative valuation method, other similar companies are used to compare the company that is being evaluated. Valuation is a craft. The more a forensic accountant does it, the more they become better at it. With relative valuation, sometimes its rules of thumb for some companies such as a multiple of sales or a multiple of discretionary seller's income. Small businesses tend to fall into these scenarios. For example, if the seller is making 30,000 a year with three times discretionary income, then they are selling for $90,000. For small businesses, it is found that the rules of thumb are pretty accurate. Many business owners do not think that they will be making $30,000 forever. They believe that they will make a lot more, but that is what the company is reporting to make now.

For large businesses, forensic accountants will actually go out into the public market and pull information from databases. If we are dealing with a company in the auto industry then we will look at automotive brands such as Ford or Chevy. We will do an analysis of the balance sheets and try to do a p/v ratio and then compare it to the company that we are assisting.

Robert A. Bonavito, CPA PC
1812 Front Street
Scotch Plains, NJ 07076
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