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Definition: Guideline Public Company Method
The guideline public company method is a market based approach of evaluating the value of an enterprise. If publicly available information exists, then this method is based on the concept that companies within similar industries or similar positions within their industries will have similar valuations or characteristics based on which the enterprise is evaluated.
The comparable companies chosen must be publicly traded on the stock exchange. Some of the important information that needs to be understood before using this method include whether the company is public or private, its markets, product lines, corporate strategy and growth in order to identify similar companies.
This method faces challenges because, private and public companies are very different and hence difficult to compare and also identify adequate number of public companies so that a reasonable basis for comparison can be established.
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