Using the DMDM to Arrive at a Value Estimate

Step one: Gather information on a large number of actual sales, transactions, or comparable businesses.

Step two: Select a performance measure, usually selling price to gross or selling price to earnings, to be used as a basis for comparison.

Step three: Analyze the transaction data to define the market (mean, standard deviation, etc.)

Step four: Compare the target business to the businesses represented by the transaction data.

Step five: From steps three and four, make an estimate of the market value of the business being appraised.

Step six: Test the value estimate.