This week, I am discussing the use and misuse of symmetrical data using market multiples from sales transaction databases. Symmetric data is observed when the values of variables appear at regular frequencies or intervals around the mean (average). Asymmetric data, on the other hand, may have skewness or noise such that the data appears at irregular or haphazard intervals.
In plain English, symmetrical means the data for use in the business valuation has an equal amount of positive and negative numbers in the data selected. This helps prevent obtaining data that has more negative numbers that will produce a low value or has more positive numbers that will produce a higher value. Just downloading the data and using the multiples is not utilizing professional judgment. This is an excellent way to cherry pick the data.
The result selected can be used for a business valuation by using the data as a market multiple or as a multiplier for capitalizing cash flows. If the data has not been tested properly, the business valuation expert may use data that will skew the result.
I will be presenting additional presentations on this topic to get into more detail so attorneys will know how to use the data in depositions or trial.
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Richard Claywell has been valuing closely held companies since 1985. He Has earned two of the highest designations in the business valuation field, the Certified Business Appraiser (“CBA”) and Accredited Senior Appraiser (“ASA”), Richard is a Certified Public Accountant, has a Masters in Business Valuation, and holds the ASA, CBA, ABV, ICVS, CVA, MAFF, CFD, CVGA, ICVS-A credentials.