Which method emphasizes the relationship between a business's sale price and its gross profit?

The method that emphasizes the relationship between a business's sale price and its gross profit is the gross profit multiplier method. This approach specifically utilizes the gross profit generated by a business to help determine its value. By applying a multiplier to the gross profit, which is derived from the sales minus the cost of goods sold, investors or appraisers can arrive at an estimated sales price for a business.

This method is particularly useful in retail and service-oriented businesses where gross profit is a significant indicator of performance and potential profitability. It allows for a quick assessment based on financial data that is readily available and emphasizes the relationship between revenue generation and costs directly associated with the product or service sold.

Other methods, while relevant in different contexts, do not focus specifically on the relationship between sale price and gross profit in this manner. For example, the cost approach relies on the actual costs incurred in creating a business while the market approach tends to compare similar businesses in the market to estimate value. The income approach emphasizes future income streams generated by the business rather than its current profitability relation to sale price.