Our Estimate of Value makes use of the discounted income method by comparing industry-standard data sources of over 65,000 market transactions along with rules of thumb for hundreds of NAICS codes to determine an average market price. This enables us to calculate the variation of price within most industries. We have a data partner that provides us with anonymized closed transactions that we use to calculate the market price of a particular NAICs code, usually this includes the revenue, multiple the company sold for, industry code, and a few other data points.
However this Data is limited by a few things, first of all, these are transactions that brokers are allowed to report on and choose to report to the aggregator. Also, it contains really large companies or very small ones that are not in the target size our valuation algorithm focuses on. It is heavily weighted to small service businesses and restaurants. It is also past facing over a previous year. Finally, the industry is usually based on the NAICs code, an outdated industry classification that doesn't reflect modern industries, particularly new and emerging businesses and markets. As such we sometimes don't have enough data points to make an accurate determination for some selected NAICs codes. In this case, our algorithm either has to use the more general category (i.e. the 4 or 2 digit level) or may have outdated data.
As such certain industries may be more accurate with our estimate of value than others.