Insights · Valuation · September 16, 2026

Income, Market, or Asset: How Courts Weigh the Three Valuation Approaches

By Pierce Schultz, Esq., and Abhi Mathews, CFA, CBV, ABV

This article continues our series on valuing closely-held Florida businesses. Earlier articles addressed tax-affecting S corporations and other pass-through entities, as well as the standard of value – fair value versus fair market value – and the discounts that may follow from it.

But before any discount can be applied, there has to be a number to discount. Where does that number come from?

Valuation is generally based on three approaches: the income approach, the market approach, and the asset approach. Appraisers need to make choices among these approaches, often applying weightings between them, and that choice can result in substantially different valuations of the same company.

That raises a question appraisers and lawyers should be able to answer: how does the court make a decision as between the different approaches?

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The three approaches.

The income approach values a business based on the economic benefits it is expected to generate in the future. Its best-known form is the discounted cash flow (“DCF”) analysis, which projects the company’s future cash flows and discounts them to present value at a rate reflecting their risk. A simpler variant capitalizes a single normalized earnings figure. The income approach can be applied to most businesses, but it can be difficult to apply to companies that do not generate income, have limited operating history, are earning less than a fair return on their asset base, among other cases. Those factors may affect the weighting. Also, the projections are very important, and their quality may drive the weighting as well: who prepared them, when, for what purpose, whether they were made in the ordinary course of business or built for the litigation, and whether the company has ever actually hit them.

The market approach values a business by reference to prices actually paid for similar companies or the same company. Market approach offers a reality check. It brings context, comparability, and evidence to valuation, anchoring estimates in what the market has actually done. Its appeal is that it rests on real transactions rather than projections. Its weakness lies primarily in the quality of the data. Unfortunately, private-transaction databases often report deals with no audited financials, undisclosed terms, and no window into the buyer’s motive; and the price paid can depend on deal structure – earnouts, seller financing, retained real estate, employment agreements – that have nothing to do with the subject company. That can make it difficult to find quality comparables. For purposes of this article, the comparable companies method (comparing to publicly traded companies), the comparable transactions method (comparing to other mergers, buyouts, or other transactions), and the transaction price (using the transaction price from a merger or other transaction triggering appraisal rights) are all considered part of the market approach.

The asset approach values a business based on the value of its assets and liabilities, without consideration of its future earnings capacity. It is used for risk assessment or as the main approach for asset-heavy businesses, such as real estate holding companies or investment holding companies, and for businesses that have not earned, or are not expected to earn, a reasonable rate of return on invested capital or net assets. The asset approach is the principal valuation method when the business does not have value as a going concern, in which case the company is valued on a liquidation basis. But it can also be used to value businesses that are a going concern, in which case the asset approach will typically be the floor rather than the fair value.

How courts decide between the three approaches.

Deciding between, or applying weights to, the three approaches is a case-specific, fact-intensive inquiry, within the discretion of the trial court. See Cox Enterprises, Inc. v. News-Journal Corp., 510 F.3d 1350, 1357 (11th Cir. 2007) (stating that “the court charged with valuing shares in a corporation [has] discretion to determine the most appropriate valuation method”). The courts typically rely heavily on the experts, and the factors that courts consider largely align with those considered by appraisers.

Courts tend to favor the income approach. See Andaloro v. PFPC Worldwide, Inc., C.A. Nos. 20289/20336, 2005 WL 2045640, at *20 (Del. Ch. Aug. 19, 2005) (“[A] DCF valuation is the best technique for valuing an entity when the necessary information regarding the required inputs is available.”); Highfields Capital, Ltd. v. AXA Financial, Inc., 939 A.2d 34, 52 (Del. Ch. 2007) (“Delaware courts tend to favor a DCF model over other available methodologies in an appraisal proceeding.”).

However, the income approach typically yields to the other approaches where “the transaction giving rise to appraisal was an arm’s-length merger, where the data inputs used in the model are not reliable, or where a DCF is not customarily used to value a company in a particular industry.” Highfields, 939 A.2d at 52–53.

Where the valuation is being done in an appraisal proceeding triggered by an arm’s-length transaction, the market approach – specifically the transaction price – is typically used.¹ See Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd, 177 A.3d 1, 30 (Del. 2017) (a deal price produced by a clean sale process carried “heavy, if not overriding, probative value”); see also Gilbert E. Matthews, Delaware Appraisal Decisions, Harvard Law School Forum on Corporate Governance (Jan. 12, 2020).

The income approach also typically yields to the market approach if the inputs are unreliable. For example, in Cox, the court, applying Florida law, did not credit the company’s DCF model that assumed the company would keep operating as it had – which, on a record of waste and mismanagement by the majority, meant projecting the depressed cash flows forward and locking the misconduct into the value of the minority’s shares. 510 F.3d at 1355–56. Instead of the income approach, therefore, the court applied the market approach based on a normalized operating margin. Id. at 1356, 1357–59.

Courts also consider the reliability of the market approach. The more comparable the companies, the more persuasive the market approach. Thus, recent sales of, or bona fide offers for, interests in the subject company can be very persuasive. See G & G Fashion Design, Inc. v. Garcia, 870 So. 2d 870, 872–73 (Fla. 3d DCA 2004) (adopting a bona fide, arm’s-length third-party offer for the subject shares as fair value). And if there are “solid comparables,” the market approach likely deserves weight, even where there are reliable management projections to support the income approach. See Andaloro, 2005 WL 2045640, at *20 (applying a 25% weighting to the market approach and 75% to the DCF model).

If there are minor differences between companies, appropriate adjustments can sometimes be made. See Reis v. Hazelett Strip-Casting Corp., 28 A.3d 442, 477 (Del. Ch. 2011) (noting that “appropriate adjustments can account for some differences”). At a certain point, however, the differences become too large for courts to give the market approach any weight. See id. at 469, 477–78 (not crediting market approach where selected companies were bigger, had more diversified customer bases, better access to capital, deeper management teams, and more consistent earnings); In re Radiology Assocs., Inc. Litig., 611 A.2d 485, 489–90 (Del. Ch. 1991) (same where selected companies differed in product mix, revenues, profit margins, revenue and earnings growth rates, assets, and geographic markets).

Further, the asset approach may be applied over the income approach depending on the company’s industry and financial performance. See, e.g., Highfields, 939 A.2d at 54, 61–64 (declining to utilize income approach for life insurer); Bohac v. Benes Service Co., 969 N.W.2d 103, 116–18 (Neb. 2022) (applying asset approach for an asset-heavy equipment dealership with no usable comparables).

Because the question is so fact-intensive, however, it is the job of the expert and attorney to persuade the court that their approach is what best measures the present value of the subject company. The expert must make assumptions, apply methods, and reach conclusions that are reasonable and supportable. If a party’s expert chooses one approach solely to justify a high or low number, or makes assumptions that are too aggressive, the party risks the court discrediting the expert’s testimony.

Don’t let that happen. Almost always, the trial court is where this issue will be put to bed. See G & G Fashion Design, 870 So. 2d at 873 (stating that “[a] trial court’s selection of one valuation method over another does not require reversal” and that “[o]n this record, we could reverse only by re-weighing the evidence and the credibility of the witnesses—a function not ascribed to this court”). You likely have one opportunity to convince the court to adopt your approach. It is imperative that you make the most of it.

Dealing with something like this?

Valuation method can be a huge variable in a buyout, appraisal, or ownership dispute – larger than most liability issues. If you are dealing with a Florida business valuation dispute, I would welcome a conversation.