Question

What's required in order to use the market multiple method, but
which sometimes doesn't exist?

Answer 1

The market multiple method requires availability of comparable companies, access to financial data, and an understanding of market dynamics. However, in some cases where information is highly imperfect or there is a lack of comparable companies, the method may not be suitable.

Step-by-step explanation:

In order to use the market multiple method, certain requirements must be met. The market multiple method is a valuation technique used to estimate the value of a company by comparing it to similar publicly traded companies in the market.

The requirements for using this method include:

1. Availability of comparable companies: There must be similar companies in the market that can be used as benchmarks for comparison.
2. Access to financial data: Accurate and up-to-date financial data of the company being valued as well as the comparable companies are necessary for calculation.
3. Understanding of market dynamics: It is important to have a good understanding of the market and industry in which the company operates in order to make meaningful comparisons.

However, there are instances where the market multiple method may not be applicable or suitable, such as when there is a lack of comparable companies or when the information about the quality of products is highly imperfect, making it difficult for a market to exist.