The latest 2020 edition of the International Valuation Standards (IVS) marks an important milestone towards harmonising valuation practice worldwide.
Valtech has been closely following the development of IVS. IVS is applicable in many of our valuation engagements looking for consistency and transparency for potential investment decisions.
We pay a lot of attention in the updates of IVS 200 Business and Business Interests as this standard is frequently referred in business valuation. We can see that the major updates are relate to Capital Structure Considerations. Traditionally, equity is frequently derived by the formula of enterprise value minus debt plus free cash. Under IVS 200, two important issues have been raised.
IVS 200 put additional requirements on valuers to consider the capital structure in valuing equity (especially common equity). In many cases, the value of a particular class of equity cannot be derived directly. So enterprise value is usually first derived and then allocated to different classes of equity.
For simple capital structures that include only common stock and simple debt structures (such as bonds, loans and overdrafts), it may be possible to estimate the value of all of the common stock within the enterprise by directly estimating the value of debt, subtracting that value from the enterprise value, then allocating the residual equity value pro rata to all of the common stock. This method is not appropriate for all companies with simple capital structures, for example it may not be appropriate for distressed or highly leveraged companies.
To solve for the equity value, three methods are mentioned in IVS 200 which may be applied in different circumstances. The three methods are namely Current Value Method (CVM), Option Pricing Method (OPM) and Probability-Weighted Expected Return Method (PWERM). In the three methods introduced, OPM can be considered as more general and forward looking to value the payoffs of different equity classes.
The major updates of IVS 200 put higher weight on knowledge and background in corporate finance and option pricing on top of traditional valuation skills of building discount cash flow models and market approach analysis.
The concepts of dividend or preferred dividend rights, liquidation preferences, voting rights, redemption rights, conversion rights, participation rights, anti-dilution rights, registration rights, and put and/or call rights are usually covered in corporate finance courses or the CFA curriculum. Practical application and valuation are usually covered in advanced courses. Valuers need to be ready for market expectation on more sophisticated valuation models on valuation of common equity especially when it is more common globally to have complex capital structures for growth companies.
Why Appoint Valtech as Valuation Adviser?
Valtech’s team has provided valuation advice to over 200 listed companies in Hong Kong, China, Singapore, Taiwan, Australia, the United Kingdom, the United States and Germany.
Valtech Valuation is a professional valuation firm accredited with ISO-9001 in valuation advisory services. The financial market and valuation requirements are highly dynamic. We are determined to develop and maintain a quality management system to foster an environment which is sustainable and evolving continuously. Our founders stress on development of a system and an environment that our consultants are provided with necessary support and opportunities to thrive.
We are a team of professionals from multiple disciplines including audit, financial modelling, tax, internal control and surveying. Our management adheres professional excellence. Abundant resources are reserved to develop standardized policies and procedures for quality control. We have solid track record in valuation advisory for listed companies, private equity, fund managers and financial institutions. We work closely with big four and other international accounting firms, corporate financial advisors, fund managers and legal advisors.
Valtech Advantages:
Advanced Valuation Techniques: Valtech Valuation can develop and implement advanced valuation techniques that are specifically tailored to the needs of clients. These techniques can go beyond traditional valuation methods and incorporate factors such as market trends, industry benchmarks, and risk analysis to provide more accurate and insightful valuations.
Customized Valuation Models: Valtech Valuation can create customized valuation models that align with the unique investment strategies and asset classes. By understanding the specific requirements and objectives of these entities, Valtech Valuation can develop models that capture the nuances of their portfolios, resulting in more precise and relevant valuations.
Data-driven Insights: Valtech Valuation can leverage its access to comprehensive data sources and analytics tools to provide data-driven insights. By analyzing market data, economic indicators, and performance metrics, Valtech Valuation can offer valuable insights into the valuation of assets, identify emerging trends, and help inform investment decision-making.
Adherence to Compliance and Reporting Standards: Valtech Valuation can ensure that valuation practices adhere to regulatory compliance and reporting standards. By staying updated on relevant regulations, such as accounting standards and industry guidelines, Valtech Valuation can help clients meet their reporting obligations accurately and in a timely manner.
