The Importance of Industry Research in Valuing a Business

Many times the industry outlook section of a business valuation report is not given the appropriate attention it deserves. Conducting a detailed industry analysis will provide the valuation analyst with the required knowledge needed to determine an appropriate conclusion of value.

Industry research requires the valuation analyst to consider both financial and non financial information. Non financial information includes industry performance , industry outlook, environmental issues, regulations, competitive landscape, products and /or services offered,supply chains, industry life cycle, and barriers to entry. These considerations help the analyst to determine the appropriate growth and discounts rates . Financial information includes key industry statistics such as sales, profit margins,and key ratios to benchmark company operations relative to the industry.

One of the most important non financial considerations is the product and/or service segmentation of the company being valued and understanding how it relates to the industry as a whole

As a general rule, a company’s performance is closely related to the industry in which it operates. Understanding the various aspects of the industry is an important component in determining an accurate and defensible conclusion of value.

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