APPROACH AND METHODS OF VALUATION OF ENTERPRISE

I. Approaches applied in business valuation

1. Market approach

In the market approach, business value is determined through the value of the business compared to the business that needs to be appraised in terms of the following factors:

• Scale;
• Main business sectors;
• Business risks, financial risks;
• Financial indicators or successful transaction prices of the business itself need to be appraised.

The methods used in the market approach to determine enterprise value are the average ratio method and the transaction price method.

2. Cost approach

In the cost approach, business value is determined through the value of the businesss assets. The method used in the cost approach to determine business value is the asset method.

3. Income approach.

In the income approach, enterprise value is determined through the conversion of predictable future net cash flows back to the valuation date.
The method used in the income approach to determine business value is:

• Discounted free cash flow method of a business
• Dividend discount method
• Discounted equity free cash flow method

When determining business value using the income approach, it is necessary to add the value of non-operating assets at the time of valuation with the predictable discounted cash flow value of operating assets at the time of valuation. time of valuation. In cases where the cash flow of some operating assets cannot be reliably forecasted, the appraiser may not forecast the cash flow of this operating asset and determine the value of this operating asset separately. to add to business value. The dividend discount method alone does not add non-operating assets, which are cash and cash equivalents.

II. Business valuation method

1. Average ratio method

The average ratio method estimates the equity value of the business that needs to be appraised through the average market ratio of comparable businesses.

- A comparable enterprise is an enterprise that satisfies the following conditions:

• Similar to businesses that need to evaluate the following factors: main business lines; business risks, financial risks; financial indicators.
• There is information about the price of shares successfully traded on the market at the time of price appraisal or near the time of price appraisal but not more than 01 year up to the time of price appraisal.

- In case of applying the average ratio method: There are at least 03 comparison enterprises. Priority is given to comparison businesses that are listed on the stock exchange or registered to trade on UPCoM.

2. Transaction price method

The transaction price method estimates the equity value of the business that needs to be appraised through the transaction price of transferring the capital contribution or successfully transferring shares on the market of the business that needs to be appraised.
Where to apply: Enterprises need to appraise the price of at least 03 successful capital contribution or share transfer transactions on the market; At the same time, the transaction time must not exceed 01 year from the time of price appraisal.

3. Asset method

The asset method is a method of estimating the value of the business that needs to be appraised by calculating the total value of the assets owned and used by the business that needs to be appraised.
Determining the value of state-owned enterprises and single-member limited liability companies in which 100% of the charter capital is invested by the state-owned enterprise to convert into a joint stock company using the asset method is applied in accordance with the provisions of Law. equitization law.

4. Discounted free cash flow method of a business

The discounted free cash flow method of a business determines the value of the business that needs to be appraised through estimating the sum of the discounted free cash flow value of the business that needs to be appraised with the current value of its assets. non-operating assets of the enterprise at the time of valuation.
In case the enterprise that needs to be appraised is a joint stock company, the discounted free cash flow method of the enterprise is used with the assumption that the preferred shares of the enterprise that need to be appraised are considered common shares. This assumption should be clearly stated in the limitations section of the Valuation Certificate and Valuation Results Report.

5. Dividend stream discount method

The dividend stream discount method determines the equity value of the business that needs to be appraised through estimating the total value of the discounted dividend stream of the business that needs to be appraised.
In case the enterprise requiring valuation is a joint stock company, the method of discounting the enterprises dividend cash flow is used with the assumption that the preferred shares of the enterprise requiring valuation are considered common shares. This assumption should be clearly stated in the limitations section of the Valuation Certificate and Valuation Results Report.

6. Discounted equity free cash flow method

The discounted equity free cash flow method determines the equity value of the business that needs to be appraised through estimating the total value of the discounted equity free cash flow value of the business that needs to be appraised. valuation.
In case the enterprise that needs to be appraised is a joint stock company, the equity free cash flow discount method is used with the assumption that the preferred shares of the enterprise that need to be appraised are considered common shares. This assumption should be clearly stated in the limitations section of the Valuation Certificate and Valuation Results Report.

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