Question

Suppose you are given a task to evaluate a private firm, not a public firm. We do not have any valuable information besides the sales of the company. Which method will you use to evaluate this firm?

1) Discounted Cash Flow (DCF) method
2) Market Multiple method
3) Asset-based method
4) Sales-based method

Answer 1

The correct option is 4). To evaluate a private firm using only sales data, the Sales-based method is preferred because it allows for estimation of the firm's value by comparing sales figures with similar companies.

Step-by-step explanation:

When given the task of evaluating a private firm with limited information, specifically only the sales data, the most suitable method would be the Sales-based method. This technique involves comparing the firm's sales figures with those of similar companies, which have been sold or valued recently. Using the sales of comparable companies allows for the estimation of the potential market value of the firm in question. While other methods like the Discounted Cash Flow (DCF), Market Multiple, and Asset-based methods require more comprehensive financial data, the Sales-based method can provide a rough estimate when such information is not available.