03 approaches to enterprise valuation from July 01, 2024 in Vietnam

03 approaches to enterprise valuation from July 01, 2024 in Vietnam​ (Image from the internet)

Regarding this matter, LawNet provides the following clarification:

On May 16, 2024, the Minister of Finance of Vietnam issued Circular 36/2024/TT-BTC on Vietnamese Valuation Standards concerning Enterprise Valuation in Vietnam.

03 approaches to enterprise valuation from July 01, 2024 in Vietnam

The application of enterprise valuation approaches and methods should align with the enterprise's value basis and the assessment of its operating status at and after the valuation date.

(1) Market Approach

The enterprise value is determined by comparing the enterprise to be valued with similar enterprises based on factors such as scale; primary business sectors; business risk, financial risk; financial ratios, or the successful transaction prices of the enterprise to be valued. The methods used in the market approach to determine enterprise value include the average ratio method and the transaction price method.

(2) Cost Approach

The enterprise value is determined through the value of its assets. The method used in the cost approach to determine enterprise value is the asset method.

(3) Income Approach

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

When determining the enterprise value using the income approach, the non-operating assets' value at the valuation date should be added to the discounted value of the forecastable cash flow of the operating assets at that point.

In cases where it is not reliable to forecast the cash flow of certain operating assets, the cash flow of those assets may not be forecasted, and the separate value of those assets may be added to the enterprise value. Except for the dividend discounting method, the non-operating assets such as cash and cash equivalents are not included.

(Article 7 of the Vietnamese Valuation Standards on Enterprise Valuation issued together with Circular 36/2024/TT-BTC)

Operational status of enterprises to be valued after the valuation date in Vietnam

The operational and transactional status (actual or hypothetical) of the enterprise to be valued after the valuation date is determined based on information collected about the feasible operational prospects of the enterprise, its business market, valuation purpose, and legal regulations.

The value of an enterprise is often classified as a going concern value, a value for a specific period, or a liquidation value.

(Article 5 of the Vietnamese Valuation Standards on Enterprise Valuation issued together with Circular 36/2024/TT-BTC)

Determining the equity value of enterprises in Vietnam

The determination of enterprise equity value is stipulated in Article 8 of the Vietnamese Valuation Standards on Enterprise Valuation issued together with Circular 36/2024/TT-BTC as follows:

The enterprise equity value is determined by calculating the weighted average result of the valuation methods applied when using 02 or more valuation methods. The determination of weights is based on the reliability of each method, the input data information, the valuation purpose, and related factors.

Nguyen Ngoc Que Anh

>> CLICK HERE TO READ THIS ARTICLE IN VIETNAMESE