Approaches and Methods for Business Valuation

13:52, 11/07/2024

At the end of 2017, the Ministry of Finance promulgated Circular 122/2017/TT-BTC issuing Vietnam Valuation Standard No. 12.

According to the provisions of Circular 122, there are three approaches to business valuation: the market approach, the cost approach, and the income approach. To be specific:

- In the market approach, the value of the business is determined through the value of a similar or identical business to the one being appraised based on factors such as: main business sector; customers, consumption market... The methods used are the average ratio method and the transaction price method.- In the cost approach, the value of the business is determined through the value of the business's assets. The method used is the asset method.- In the income approach, the value of the business is determined by converting future net income streams to present value. The methods used are the business's free cash flow discount method, the dividend discount method, and the equity net cash flow discount method.

Note: Valuation firms may employ all approaches to determine the business's value.

More details can be found in Circular 122/2017/TT-BTC which came into effect on January 01, 2018.

- Thanh Lam -

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