From July 1, 2024, how to estimate value of an enterprise in Vietnam?

1. Approaches and methods for enterprise valuation from July 1, 2024 in Vietnam

Article 7 of Circular 36/2024/TT-BTC stipulates the following approaches and methods for enterprise valuation:

(1) Cost Approach

The enterprise value is determined through the value of the enterprise's assets. The method used in the cost approach to determine enterprise value is the asset-based method.

(2) Market Approach

The enterprise value is determined by comparing the value of the enterprise with that of similar enterprises, considering factors such as scale, main business sector, business risk, financial risk, financial ratios, or successful transaction prices of the business being evaluated.

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

(3) Income Approach

The enterprise value is determined by discounting the forecastable future net cash flows back to the valuation date. The methods used in the income approach to determine enterprise value include the discounted free cash flow method, the discounted dividend method, and the discounted free cash flow to equity method.

When determining the enterprise value using the income approach, it is necessary to add the value of non-operating assets at the valuation date to the discounted value of forecastable cash flows of operating assets at the valuation date. If the cash flows of some operating assets cannot be reliably forecasted, their cash flows can be excluded and the value of these assets should be separately determined and added to the enterprise value.

For the discounted dividend method, non-operating assets such as cash and cash equivalents should not be added.

It should be noted that the application of these approaches and methods for enterprise valuation must be appropriate to the enterprise value basis and the state of operation of the enterprise at and after the valuation date.

2. How to estimate enterprise value from July 1, 2024 in Vietnam

According to Clause 2, Article 14 of Circular 36/2024/TT-BTC, from July 1, 2024, when applying methods to estimate enterprise value, the following principles must be adhered to:

- The assets considered in the valuation process are all assets of the enterprise based on the inventory data of the enterprise to be valued; the values of these assets are assessed following the guidelines of this standard and other Vietnamese Valuation Standards; if there is a lack of information or documents for valuation, analysis and arguments must be provided in the valuation report, then the valuation should be based on the actual costs recorded in the accounting books;

- When valuing an enterprise using the market value basis, the value of the enterprise’s assets is the market value of the assets at the valuation date, as prescribed in Article 15 of this Standard;

- Intangible assets that do not meet the conditions for recognition in the accounting books (trademarks, brands, patents, industrial designs, etc.) and other assets not recorded in the accounting books must be valued using appropriate valuation methods;

- For assets accounted for in foreign currencies: the exchange rates applied must follow the guidelines of the Vietnamese Accounting Standards when preparing and presenting financial statements.

Additionally, the application of the asset-based method includes:

- Estimating the total value of tangible assets and financial assets of the enterprise to be valued;

- Estimating the total value of intangible assets of the enterprise to be valued;

- Estimating the value of the equity of the enterprise to be valued.

Sincerely!

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