On May 16, 2024, the Minister of Finance officially issued Circular 36/2024/TT-BTC, which sets forth the Vietnam valuation standards related to business valuation. This represents a significant step in refining the legal framework, establishing a solid foundation for valuation activities, and enhancing transparency and efficiency in the Vietnamese financial market.
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Circular 36/2024/TT-BTC provides detailed guidelines on approaches and methods for business valuation. Specifically, these methods include:
(1) Market Approach:
This method compares the business being valued with similar businesses in the market. Factors considered include size, primary business sector, business risk, financial risk, and key financial indicators. Previous successful transaction prices of the business being valued are also crucial benchmarks. The specific methods commonly used under the market approach are the market multiples method and the transaction price method.
(2) Cost Approach:
The cost approach focuses on the intrinsic value of the assets owned by the business. The value of the business is determined through the value of its assets. This method is suitable for businesses with significant tangible assets such as real estate, machinery, equipment, as well as intangible assets such as land use rights, patents, and trademarks. The method used in the cost approach to determine the value of the business is the asset-based approach, where the value of the business is calculated based on the total value of assets after deducting liabilities.
(3) Income Approach:
The income approach focuses on the profit-making ability of the business in the future. The value of the business is determined by discounting the projected net cash flows that can be reasonably forecasted to the valuation date.
The methods used under the income approach to determine the value of the business include the discounted cash flow method, the dividend discount method, and the discounted free cash flow to equity method. When determining the value of the business using the income approach, the value of non-operating assets at the valuation date is added to the discounted projected cash flows of operating assets. If the cash flows of certain operating assets cannot be reliably forecasted, the cash flows of these assets may not be forecasted and their value determined separately to add to the value of the business.
The circular emphasizes that applying these approaches and valuation methods enhances professionalism and transparency in the field of business valuation, contributing significantly to the sustainable development of Vietnam's financial and economic markets.
Circular 36/2024/TT-BTC will be effective from July 1, 2024.
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