The latest enterprise valuation methods in 2023 are respectively specified in Part II of Vietnam Valuation Standard No. 12 promulgated together with Circular 28/2021/TT-BTC, specifically as follows:
Average ratio method in business valuation
The concept of the average ratio method
The average ratio method is a method of estimating the equity value of the enterprise to be appraised through the average market ratio of comparable enterprises.
In the case of using the average ratio method
There are at least 03 comparison enterprises. Priority will be given to comparable companies that are listed on the stock exchange or registered for trading on UPCoM.
Implementation principles:
- The method of determining financial ratios and market ratios must be consistent for all comparable enterprises and enterprises that need a valuation.
- Financial indicators, and market ratios of comparable enterprises collected from different sources must be reviewed and adjusted to ensure consistency in the way they are determined before they are put into use. valuation.
Steps to determine the equity value of a business:
- Step 1: Evaluate and select comparable businesses.
- Step 2: Determine the market ratios used to estimate the value of the business to be appraised.
- Step 3: Estimate the equity value of the enterprise to be appraised based on appropriate market ratios to use and make differential adjustments.
Transaction pricing method in business valuation
The concept of the transaction price method
The transaction price method is a method of estimating the equity value of the enterprise to be appraised through the transaction price of transferring capital contribution or transferring shares successfully on the market of the enterprise to be appraised. price.
In the case of applying the transaction price method
Enterprises that need to appraise prices have at least 03 successful transactions of transferring capital contribution or transferring shares in the market; at the same time, the time of the transaction does not exceed 01 year before the time of price appraisal.
Principles of application
Appraisers need to evaluate and consider adjusting the prices of successful transactions to match the valuation time if necessary.
Estimated equity value
The equity value of the enterprise to be appraised is calculated according to the average price according to the transaction volume of at least 03 successful transactions of the transfer of contributed capital or shares closest to the time of appraisal. price.
In case the enterprise that needs to be appraised is an enterprise that has listed its shares on the stock exchange or registered for trading on UPCoM, the share price used to calculate the equity market price is the transaction price.
Or the closing price of the shares of the enterprise to be appraised is at or closest to the time of valuation and there must be transactions of this share within 30 days from the time of prior valuation.
Asset method in business valuation
Asset method concept
The asset method is a method of estimating the value of the enterprise to be appraised by calculating the total value of the assets owned and used by the enterprise to be appraised.
The determination of the value of state-owned enterprises and one-member limited liability companies in which 100% charter capital is invested by the state-owned enterprises to be converted into joint-stock companies by the asset method shall be applied by the provisions of law. legislation on equitization.
Principles of implementation
- Assets considered in the valuation process are all assets of the business, including both operating and non-operating assets.
- The director (general director) of the enterprise that needs to be appraised should coordinate in organizing the inventory and classification of assets currently owned, managed, and used (including property rights) together with supporting documents. demonstrate ownership and use of assets to serve the valuation;
At the same time, assist appraisers in surveying the current state of the businesss assets. In case the appraiser is not provided with sufficient information and documents as mentioned above, and is not supported to survey the current state of the property, the appraiser shall evaluate and consider making assumptions (if necessary);
Also, include this restriction in the exclusions and limitations section of the deed and valuation report.
- When appraising an enterprise based on market value, the value of the enterprises assets is the market value of that asset at the time of valuation. Assets in accounting books need to be appraised at market value, except for some special cases.
- Intangible assets that do not satisfy the conditions to be recorded in the accounting books (trade names, trademarks, inventions, industrial designs...) and other assets not recorded in the accounting books. accounting books should be applied the appropriate valuation method to determine.
- For assets accounted in foreign currencies: Foreign currency rates shall be applied according to the guidance of Vietnamese Accounting Standards when preparing and presenting financial statements.
Steps to take
- Step 1: Estimate the total value of tangible assets and financial assets of the enterprise to be appraised.
- Step 2: Estimate the total value of intangible assets of the enterprise to be appraised.
- Step 3: Estimate the equity value of the business to be appraised.
Discounted firms free cash flow method in business valuation
The concept of the firms free cash flow discount method
The discounted free cash flow method of the business is a method of determining the value of the business to be appraised by estimating the sum of the discounted free cash flow value of the business to be valued at the present value. of non-operating assets of the enterprise at the time of valuation.
In case the enterprise to be appraised is a joint stock company, the discounted free cash flow method of the enterprise is used assuming that the preferred shares of the enterprise to be appraised are treated as common shares.
This assumption should be clearly stated in the Restrictions section of the Valuation Deed and the Valuation Result Report.
Steps to determine the equity value of a business
- Step 1: Forecast the free cash flow of the business to be appraised.
- Step 2: Estimate the weighted average cost of capital of the enterprise to be appraised.
- Step 3: Estimate the value at the end of the forecast period.
- Step 4: Estimate the equity value of the business to be appraised.
Discounted dividend flow method in business valuation
The concept of the method of discounting the dividend stream
The discounted dividend stream method is a method of determining the equity value of the enterprise to be appraised by estimating the sum of the discounted value of the dividend stream of the enterprise to be appraised.
In case the enterprise that needs to be appraised is a joint stock company, the discounted cash flow method of the enterprise is used with the assumption that the preferred shares of the enterprise needing valuation are considered as common shares.
This assumption should be clearly stated in the Restrictions section of the Valuation Deed and the Valuation Result Report.
Steps to determine equity value:
- Step 1: Forecasting the dividend stream of the enterprise to be appraised.
The appraiser needs to forecast the dividend payout ratio and dividend growth rate of the business to be appraised. To estimate the dividend forecast period, appraisers base on the characteristics of the enterprise, the business sector, and the economic context to select appropriate growth models.
The minimum dividend forecast period is 3 years. For newly established or fast-growing businesses, the dividend forecast period can be extended until the business enters a phase of steady growth.
For enterprises operating with a term, the forecast period for dividend flows is determined according to the age of the business.
- Step 2: Estimate the cost of equity.
- Step 3: Estimate equity value at the end of the forecast period
Discounted equity free cash flow method in business valuation
The concept of the discounted free cash flow to equity method
The discounted free cash flow to equity method is a method of determining the equity value of the business to be valued by estimating the sum of the discounted free cash flow of the equity of the business. businesses need a valuation.
In case the enterprise to be appraised is a joint stock company, the discounted equity free cash flow method is used assuming that the preferred shares of the enterprise to be appraised are treated as common shares.
This assumption should be clearly stated in the Restrictions section of the Valuation Deed and the Valuation Result Report.
Steps to determine equity value:
- Step 1: Forecast the free cash flow of equity of the enterprise to be appraised.
To estimate the cash flow forecast period, appraisers base on the characteristics of the business, the business sector, and the economic context to select appropriate growth models.
The minimum cash flow forecast period is 3 years. For newly established or fast-growing businesses, the cash flow forecast period can be extended until the business enters a phase of steady growth.
For enterprises operating with a term, the determination of the cash flow forecast period needs to be evaluated, taking into account the age of the business.
- Step 2: Estimate the cost of using the equity of the business to be appraised.
- Step 3: Estimate equity value at the end of the forecast period.
- Step 4: Estimate the equity value of the business to be appraised.
What is the regulation on the conclusion of the equity value of the enterprise in the enterprise valuation method?
According to Section 9 Part II, Vietnam Valuation Standard No. 12 issued together with Circular 28/2021/TT-BTC stipulating the conclusion on the equity value of enterprises as follows:
The equity value of a business can be determined through the weighted average of the results of the valuation methods applied. The determination of weights for each option is based on the reliability of each method, input data information, valuation purposes, etc. to ensure that it is suitable for the market.
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