Circular 36/2024/TT-BTC promulgating Vietnam Valuation Standards on Enterprise Valuation

CIRCULAR

Promulgating Vietnam Valuation Standards on Enterprise Valuation

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Pursuant to the Law on Price dated June 19, 2023;

Pursuant to the Government’s Decree No. 14/2023/ND-CP dated April 20, 2023 defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

At the proposal of the Director of the Price Management Department;

The Minister of Finance promulgates the Circular promulgating Vietnam Valuation Standards on Enterprise Valuation.

Article 1. Issued together with this Circular are the Vietnam Valuation Standards on Enterprise Valuation.

Article 2. Effect

1. This Circular takes effect from July 01, 2024.

2. Circular No. 28/2021/TT-BTC dated April 27, 2021 of the Minister of Finance promulgating Vietnam Valuation Standard No. 12 ceases to be effective from the effective date of this Circular.

Article 3. Implementation organization

1. Relevant organizations and individuals are responsible for implementing the Vietnam Valuation Standards promulgated issued together with this Circular.

2. During implementation process, if any difficulties arise, organizations and individuals are requested to promptly report to the Ministry of Finance for consideration and resolution./.

VIETNAM VALUATION STANDARDS
ON ENTERPRISE VALUATION

(Issued together with Circular No. 36/2024/TT-BTC dated May 16, 2024, of the Minister of Finance)

Chapter I

GENERAL PROVISIONS

Article 1. Scope of regulation

These Vietnam Valuation Standards provide for regulations and guidance on the implementation of enterprise valuation when conducting appraisals in accordance with the law on prices.

Article 2. Subjects of application

1. Valuers and valuation enterprises engaging in the provision of valuation services in accordance with the law on prices.

2. Organizations and individuals conducting State valuation activities in accordance with the law on prices.

3. Organizations and individuals requesting valuation, and third parties utilizing valuation reports under valuation contracts (if any).

Article 3. Interpretation of terms

In these Vietnam Valuation Standards, the following terms are understood as follows:

1. Operating assets mean assets used in the enterprise's course of production and business operations, and contribute to the generation of sales revenue and provision of services, or help reduce the costs of the enterprise's main production and business operations.

2. Non-operating assets mean assets not involved in the enterprise's production and business operations, including: investments in other companies (except in cases where the enterprises being valuated are financial investment companies); short-term financial investments; cash and cash equivalents; assets owned or used by the enterprise that do not contribute to generating income for the enterprise but still have value (unexploited assets, unused patents, land use rights, unexploited land lease rights based on the enterprise's business plan, or planned for transfer/sale due to no longer being needed); assets owned or used by the enterprise that generate income for the enterprise but do not contribute to generating sales revenue and providing services, or do not help reduce the costs of the enterprise's main production and business operations according to the enterprise's primary business lines (land use rights or land lease rights exploited not according to the enterprise's business lines); and other non-operating assets.

3. Going concern value means the value of an enterprise that is operating under the assumption that the enterprise will continue operating after the valuation date.

4. Finite life value means the value of an operating enterprise under the assumption that the enterprise has a finite life and will be forced to cease operations at a specified time in the future.

5. Liquidation value means the value of an enterprise under the assumption that the enterprise's assets will be sold individually and the enterprise will cease operations shortly after the valuation date.

Article 4. Basis of value

The basis of value for enterprise valuation shall be determined based on the purpose of valuation, legal characteristics, economic-technical characteristics, and market characteristics of the enterprise being valuated, requirements of valuation client as stated in valuation contract (if consistent with the purpose of the valuation), and relevant legal provisions. Other aspects shall be implemented in accordance with the provisions of the Vietnam Valuation Standards on the Basis of Value for Valuation.

Article 5. Operating and transactional status of the enterprise being valuated after the valuation date

The operational and transaction status (actual or hypothetical) of the enterprise being valuated after the valuation date shall be determined based on the collected information regarding the enterprise's viable operating prospects, the enterprise’s business market, the purpose of the valuation, and legal provisions.

The value of the enterprise is typically the going concern value, the finite life value, or the liquidation value.

Article 6. Use of financial statements in enterprise valuation

1. The use of financial statements in enterprise valuation shall be based on the selected appraisal approach and method, the valuation date, and the characteristics of the enterprise being valuated, preferably using financial statements that have been audited and reviewed by an independent audit entity.

2. Cross-checking and verifying the reasonableness of the financial statements to ensure reliability; if necessary, the enterprise being valuated should be requested to adjust the financial data in the financial statements before incorporating this data into information analysis, applying valuation approaches and methods for enterprise valuation purposes. In cases where the enterprise being valuated does not make adjustments, identify the discrepancies and provide a clear analysis of the content, basis for adjustment, and clearly record it in the valuation report.

3. In cases where unaudited or unreviewed financial statements are used, or audited or reviewed financial statements with a qualified opinion are used, these limitations must be clearly stated in the limitations section of the valuation report and valuation certificate or appraisal result notification, so that the organization or individual requesting the valuation and the user of the valuation results are made aware.

4. For valuation methods in the market approach: When using data from the financial statements of the enterprise being valuated and comparable enterprises to calculate indicators such as: earnings per share (EPS) and earnings before interest, taxes, depreciation and amortization (EBITDA) in calculating market ratios for valuation purposes, adjustments should be made to exclude income and expenses of non-operating assets, and unusual or non-recurring expenses and income.

5. For valuation methods in the income approach: When using profit data from the most recent years' financial statements of the enterprise being valuated for the purpose of forecasting the enterprise's future annual income streams, it is necessary to exclude unusual or non-recurring expenses and income, as well as income and expenses of non-operating assets.

6. Non-recurring expenses and profits include: expenses related to corporate restructuring; gains or losses from asset sales; changes in accounting estimates; inventory write-downs; goodwill impairment; debt write-offs; losses or gains from court decisions; and other non-recurring profits and expenses. When making these adjustments, the impact of corporate income tax (if any) must be considered.

Article 7. Approaches and methods for enterprise valuation

The application of approaches and methods for enterprise valuation must be consistent with the basis of value of the enterprise and the assessment of the enterprise's operating status at and after the valuation date.

1. Market approach

The enterprise value shall be determined by comparing the enterprise being valuated with comparable enterprises that share similar characteristics such as size, main business lines, business risk, financial risk, financial indicators, or successful transaction prices of the enterprise being valuated itself. The methods used in the market approach to determine enterprise value are the guideline public company method and the guideline transaction method.

2. Cost approach

The enterprise value shall be 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.

3. Income approach

The enterprise value shall be determined by converting the forecastable future net cash flows to the valuation date. The methods used in the income approach to determine enterprise value are the discounted cash flow method, the discounted dividend method, and the discounted cash flow to equity method.

When determining enterprise value using the income approach, the value of non-operating assets at the valuation date should be added to the discounted value of the forecastable cash flows of operating assets at the valuation date. In cases where the cash flows of some operating assets cannot be reliably forecasted, the cash flows of these operating assets may not be forecasted, and the value of these operating assets may be determined separately and added to the enterprise value. In the discounted dividend method, the value of non-operating assets that are cash and cash equivalents is not added.

Article 8. Determination of the equity value of the enterprise

The equity value of the enterprise shall be determined by calculating the weighted average of the results of the valuation methods applied, in cases where two or more valuation methods are used. The determination of weights shall be based on the reliability of each method, the input data information, the purpose of the valuation, and other relevant factors.

Chapter II

MARKET APPROACH

Section 1.

GUIDELINE PUBLIC COMPANY METHOD

Article 9. Guideline public company method

1. The guideline public company method estimates the equity value of the enterprise being valuated through the average market ratios of comparable enterprises.

2. The market ratios considered for use in the guideline public company method include: average price-to-earnings ratio (P/E), average price-to-sales ratio (P/S), average price-to-book value of equity ratio (P/B), average enterprise value-to- earnings before interest, taxes, depreciation and amortization ratio (EV/EBITDA), average enterprise value-to-sales ratio (EV/S), and average enterprise value-to-earnings before interest and taxes ratio (EV/EBIT).

3. Comparable enterprises are those that meet the following conditions:

a) Similar to the enterprise being valuated in terms of:

- Main business lines;

- Business and financial risks;

- Financial indicators, including: Indicators reflecting the size of the enterprise: book value of equity, net revenue, gross profit from sales and service provision; Indicators reflecting the growth potential of the enterprise (average growth rate of net income after corporate income tax over the past 03 years); Indicators reflecting the performance efficiency of the enterprise (return on equity (ROE), return on assets (ROA));

b) Having information on successfully traded share prices on the market at the valuation date or close to the valuation date, but not more than 01 year prior to the valuation date.

4. Conditions for applying the guideline public company method

There are at least 03 comparable enterprises. Priority is given to comparable enterprises that are listed on the stock exchange or registered for trading on UPCoM.

5. Principles for implementing the guideline public company method

a) The method for determining financial indicators and market ratios must be consistent for all comparable enterprises and the enterprise being valuated;

b) Financial indicators and market ratios of comparable enterprises collected from different sources must be reviewed and adjusted to ensure consistency in the determination method before being used in the valuation.

6. Procedure for implementing the guideline public company method

a) Evaluating and selecting and select comparable enterprises in accordance with the provisions of Clause 3 of this Article;

b) Determining the market ratios to be used to estimate the equity value of the enterprise being valuated;

c) Estimating the equity value of the enterprise being valuated based on the appropriate market ratios to be used and make adjustments for differences.

Article 10. Determining market ratios to be used in estimating the equity value of the enterprise being appraised

The determination of market ratios to be used in estimating the equity value of the enterprise being valuated shall be carried out as follows:

1. Calculating the market ratios of comparable enterprises, then use at 03 three of the following market ratios: average price-to-earnings ratio (P/E), average price-to-sales ratio (P/S), average price-to-book value of equity ratio (P/B), average enterprise value-to-earnings before interest, taxes, depreciation and amortization ratio (EV/EBITDA), average enterprise value-to-revenue ratio (EV/S), and average enterprise value-to-earnings before interest and taxes ratio (EV/EBIT).

2. Selecting the market ratios to be used to estimate the equity value and enterprise value of the enterprise being valuated based on the appropriateness of the market ratios in terms of size, characteristics of the enterprise, business lines, market, and similarity. The market ratios of comparable enterprises should be evaluated and considered for adjustment before being applied to calculate the equity value. In cases where market ratios are adjusted, these adjustments should be based on data (if available), experience, market surveys, or market research.

3. Notes on determining market ratios

a) Earnings per share (EPS) shall be determined based on the income of the most recent year prior to the valuation date, and adjustments for non-operating assets of comparable enterprises should be considered;

b) The share price of comparable enterprises is taken as the reference price on the most recent trading day of these shares on the stock market at the valuation date, and these shares must have been traded within 30 days prior to the valuation date. In cases where the shares of comparable enterprises are not yet listed on the stock exchange or not yet registered for trading on UPCoM, the share price of the comparable enterprises is the price at which these shares were successfully traded on the market closest to the valuation date, but not more than 01 year prior to the valuation date;

c) The book value of shares in the P/B ratio should be noted to exclude the book value of intangible fixed assets (these intangible fixed assets do not include land use rights, rights to exploit assets on land) to limit the impact of accounting regulations on intangible fixed assets that may distort the valuation results in cases where comparable enterprises and the enterprise being valuated have intangible fixed assets on their balance sheets. In cases where the book value of intangible fixed assets is not excluded, the reason must be clearly stated;

d) The enterprise value (EV) parameter of comparable enterprises in the EV/EBITDA, EV/S, and EV/EBIT market ratios shall be calculated as follows:

Where:

- The value of interest-bearing debt, the value of preferred share, non-controlling interest, cash and cash equivalents shall be determined based on value recorded in accounting books. In cases where there is insufficient information to determine the value of interest-bearing debt, the value of loans and finance leases shall be taken based on their value recorded in accounting books;

- In cases where the enterprise has issued convertible securities or warrants, the conversion of these securities into common share should be assessed and considered if appropriate when determining the market capitalization of the enterprise;

dd) EBITDA and EBIT of comparable enterprises do not include income from cash and cash equivalents and do not include income and expenses arising from non-operating assets.

Article 11. Estimating the equity value of the enterprise being valuated

1. Determining the average market ratios for each market ratio

The average market ratio shall be determined by either the arithmetic mean of the market ratios of comparable enterprises or the weighted average of the market ratios of comparable enterprises.

The determination of the weight assigned to the market ratio of each comparable enterprise shall be based on an analysis of the similarity of the comparable enterprises to the enterprise being valuated.

2. Determining the enterprise value of the enterprise being valuated and equity value of the enterprise being valuated for each average market ratio on an annual basis

a) Determining the enterprise value of the enterprise being valuated and market capitalization of equity of the enterprise being valuated using the average enterprise value-to-earnings before interest, taxes, depreciation and amortization ratio of comparable enterprises, the average enterprise value-to-earnings before interest and taxes ratio of comparable enterprises, and the average enterprise value-to-revenue ratio of comparable enterprises:

In which, EBITDA of the enterprise being valuated does not include income from cash and cash equivalents or income and expenses arising from non-operating assets.

b) Determining the equity value of the enterprise being valuated using market ratios :

- Determining the equity value of the enterprise being valuated using the average price-to-earnings ratio of comparable enterprises:

- Determining the equity value of the enterprise being valuated using the average price-to-book value of equity ratio of comparable enterprises:

- Determining the equity value of the enterprise being valuated using the average price-to-sales ratio of comparable enterprises:

3. Estimating the equity value of the enterprise being valuated using the guideline public company method:

The equity value of the enterprise being valuated using the guideline public company method shall be determined by either the arithmetic mean of the equity value results of the enterprise being valuated determined for each selected average market ratio or the weighted average of the results. The determination of weights for each value result may be based on an assessment of the degree of similarity between the comparable enterprises for each type of market ratio used to calculate that value result, following the principle: the higher the degree of similarity between comparable enterprises for a given market multiple, the greater the weight assigned to the value result derived from that multiple.

Section 2.

GUIDELINE TRANSACTION METHOD

Article 12. Guideline transaction method

1. The guideline transaction method estimates the equity value of the enterprise being valuated through the transaction prices of successful transfers of ownership interests or share transfers on the market of the enterprise being valuated itself.

2. Conditions for applying the guideline transaction method

The enterprise being valuated must have at least 03 successful transfers of ownership interests or share transfers on the market; and the transaction time must not be more than one year prior to the valuation date.

3. Implementation principles: It is necessary to assess and consider adjusting the prices of successful transactions to align with the valuation date if necessary.

Article 13. Estimating equity value using the guideline transaction method

The equity value of the enterprise being valuated shall be calculated based on the volume-weighted average price of at least 03 successful transactions of ownership interest transfers or share transfers closest to the valuation date.

In cases where an enterprise has its shares listed on the stock exchange or registered for trading on UPCoM, the share price for calculating the market capitalization of equity shall be the transaction price or reference price of the enterprise's shares at or closest to the valuation date, within 30 days prior to the valuation date.

Chapter III

COST APPROACH

Article 14. Asset-based method

1. The asset-based method is a method for estimating the value of the enterprise being valuated by calculating the total value of the assets owned and used by the enterprise being valuated.

2. Implementation principles:

Assets considered in the valuation process are all assets of the enterprise based on the inventory data of the enterprise being valuated; the value of these assets shall be valuated in accordance with the guidance in this Standard and other Vietnam Valuation Standards. In cases where information or documentation for valuation is unavailable, analysis and reasoning must be stated in the valuation report, and the value shall then be determined based on the actual incurred costs recorded in the accounting books.

b) When price appraising an enterprise based on market value, the value of the enterprise's assets is the market value of those assets at the valuation date and shall be carried out in accordance with the provisions of Article 15 of this Standards;

c) Intangible assets that do not meet the conditions for recognition in the accounting books (trade names, trademarks, patents, industrial designs, etc.) and other assets not recognized in the accounting books should be valuated using appropriate valuation methods;

d) For assets accounted for in foreign currencies: The foreign exchange rate shall be applied in accordance with the guidance of Vietnam Accounting Standards when preparing and presenting financial statements.

3. The implementation of the asset-based method includes:

a) Estimating the total value of tangible assets and financial assets of the enterprise being valuated;

b) Estimating the total value of intangible assets of the enterprise being valuated;

c) Estimating the equity value of the enterprise being valuated.

Article 15. Estimating the total value of tangible assets and financial assets of the enterprise being valuated

The estimation of the market value of tangible assets and financial assets of the enterprise shall be conducted using one of the valuation methods prescribed in the Vietnam Valuation Standards on the market approach, cost approach, income approach, and other relevant Vietnam Valuation Standards.

In addition, the estimation of the market value of tangible assets and financial assets shall be conducted in accordance with the following guidelines:

1. Determining the value of monetary assets

a) Cash shall be determined based on the cash count report of the enterprise being valuated.

b) Deposits shall be determined based on the reconciled and confirmed balance or sub-ledger with the bank where the enterprise being valuated holds an account at the valuation date.

c) Cash and deposits in foreign currencies shall be determined in accordance with the principle prescribed at Point d, Clause 2, Article 14 of these Standards.

2. Determining the value of investments

The value of the enterprise's investments shall be determined at the valuation date as follows:

a) In cases where the enterprise (in which the enterprise being valuated has invested equity or purchased shares) has successful equity or share transfer transactions on the market, the value of the equity investments and share purchases shall be determined based on the market capitalization of equity of the enterprise in which the enterprise being valuated has invested. The market capitalization of equity of the enterprise in which the enterprise being valuated has invested shall be determined based on the methods prescribed in this Standard or as follows:

- In cases where the shares of the investee enterprises are not yet listed on the stock exchange or not yet registered for trading on UPCoM, and the successful equity or share transfer transactions on the market meet both conditions: (i) over 50% of the investee enterprise's equity is transferred in the total transactions; (ii) the time of the transactions is not more than 01 year prior to the valuation date, then the value of the investments of the enterprise being valuated shall be determined based on the volume-weighted average transfer price of the transactions closest to the valuation date.

- In cases where the investment is in shares of enterprises already listed on the stock exchange or registered for trading on UPCoM, the value of the investments shall be determined based on the share price, which is the reference price of the shares of the enterprise being valuated at the valuation date and there must have been transactions of these shares within 30 days prior to the valuation date or at the valuation date.

b) In cases where the enterprise (in which the enterprise being valuated has invested equity or purchased shares) does not have successful equity or share transfer transactions on the market, the value of the equity investments and share purchases shall be determined as follows:

- In cases where the enterprise being valuated holds 100% of the equity of the investee enterprises, the value of the investment shall be determined based on the value of the investee enterprise and shall be determined based on the methods prescribe in this Standard.

- In cases where the enterprise being valuated holds from 50% to less than 100% of the equity of the investee enterprises: The value of the investments shall be determined based on the equity value of the investee enterprises. The equity value of the investee enterprises shall be determined based on the methods prescribed in this Standard; in cases where it cannot be applied based on the methods prescribed in this Standard, it shall be determined as follows:

(i) For the Discounted Cash Flow to Equity (DCFE) method: the cost of equity shall be estimated based on the average return on equity for the last 5 years, and the cash flow for equity can be forecasted based on the profit data available to owners and the growth rate of return on equity over the last 5 years.

(ii) For the guideline public company method: it is necessary to estimate the ratio, and the average  ratios can be estimated based on the  ratio of at least 03 enterprises in the same production and business lines.

(iii) The value of the investment shall be determined based on: the ratio of the enterprise's invested capital to the total actual contributed capital in other enterprises and the equity value in other enterprises based on audited or reviewed financial statements. In cases where the financial statements have not been audited or reviewed, the equity value shall be based on the financial statements at the most recent date of that enterprise, and this must be clearly stated in the limitations section of the valuation certificate and valuation report.

- In cases where the enterprise being valuated holds less than 50% of the equity of the investee enterprises: the value of the investments shall be determined based on the methods prescribed in Chapter II of this Standard or in accordance with the guidance at Points (i), (ii), (iii); in cases where it is carried out in accordance with the guidance at Point (iii), it must be clearly stated in the limitations section of the valuation certificate and valuation report.

3. Determining the value of receivables and payables

a) Reconciling the receivables and payables recorded in the accounting books with relevant documents and records provided and collected during the valuation process. If necessary, request the enterprise being valuated to verify and confirm the data.

b) The value of receivables and payables shall be determined based on the relevant evidence provided; in cases where there is insufficient evidence, analysis, reasoning, and assumptions regarding recoverability shall be made based on the amounts recorded in the accounting books.

c) In cases where relevant documents and records such as reconciliation statements, confirmations of receivables and payables, or records of amounts received and paid arising after the closing date of the financial statements are not provided, this must be clearly stated in the limitations section of the valuation certificate and valuation report for the users of the valuation results to consider when using the valuation results.

4. Determining the value of inventories

a) Work-in-progress costs shall be determined based on the actual incurred costs recorded in the accounting books. In cases where the enterprise being valuated is a project investor with work-in-progress costs in capital construction associated with the creation of future real estate, it is necessary to determine the value of the enterprise's land use rights (if included in the future real estate) in accordance with the Vietnam Valuation Standards on the market approach, income approach, and real estate appraisal; for construction items, the value shall be determined based on the actual incurred costs recorded in the accounting books.

b) In cases where inventories are goods or finished real estate products, the value of this real estate shall be determined in accordance with the Vietnam Valuation Standards.

c) In cases where inventories are raw materials, tools, and equipment that have been in stock for a long time due to production errors, unfinished products that cannot be completed due to lack of demand, or due to changes in production lines, etc. leading to poor quality, the enterprise shall be requested to prepare a statistical table, classify, and propose for valuation based on their net realizable value under the principle of highest and best use.

d) In cases where inventories are raw materials, tools, and equipment in stock for normal production and operation needs and currently in transit, the value shall be determined based on the actual incurred costs recorded in the accounting books.

5. Determining the value of tangible fixed assets

a) For tangible fixed assets that are buildings, architectural structures, or investment real estate as individual projects (where the project scale, construction unit price, or investment capital rate cannot be determined): the value may be recorded at the original cost in the accounting books, taking into account the price adjustment factor due to inflation, minus the depreciation value at the valuation date.

b) For fixed assets that are machinery, means of transport, transmission equipment, equipment, and management tools:

In cases where there are no comparable assets traded on the market and there are insufficient investment records or technical records: gather, reason, and analyze information and store evidence of the lack of comparable assets traded on the market. The value of these assets shall be determined based on the original cost in the accounting books (taking into account exchange rate differences if the assets are imported at the valuation date) and minus the depreciation value at the valuation date.

In cases where the value shall be determined based on the original cost in the accounting books as guided above: clearly state this in the limitations section of the valuation certificate and valuation report.

6. Determining the value of tools and equipment that have been put into use:

The value of tools and equipment shall be determined based on the market transaction price of comparable assets. In cases where the market transaction price of comparable assets is not available, the value of tools and equipment shall be determined based on the transaction price of new tools and equipment of the same type or with similar functions, or based on the original purchase price recorded in the accounting books minus the depreciation value at the valuation date.

In cases where the value of tools and equipment shall be determined based on the value recorded in the accounting books, clearly state this in the limitations section of the valuation certificate and valuation report.

7. Determining short-term and long-term deposits and escrow accounts based on the accounting books.

8. The value of financial assets in the form of contracts shall be preferably determined using the discounted cash flow method.

9. Value of work-in-progress construction: Shall be determined similarly to work-in-progress costs.

Article 16. Estimating the total value of intangible assets of the enterprise being valuated

The value of intangible assets of the enterprise being valuated shall be calculated as the total value of identifiable intangible assets and unidentifiable intangible assets. Intangible assets of the enterprise being valuated include fixed intangible assets recorded in the accounting books, other intangible assets that meet the conditions prescribed in the Vietnam Valuation Standards on Valuation of intangible assets, and unidentifiable intangible assets.

The total value of intangible assets of the enterprise being valuated shall be determined through one of the following methods:

1. Method 1: Estimating the total value of intangible assets of the enterprise being valuated by estimating the value of each identifiable intangible asset and the value of unidentifiable intangible assets (the remaining intangible assets).

The determination of the value of each identifiable intangible asset shall be carried out in accordance with the provisions of the Vietnam Valuation Standards on valuation of intangible assets. Specifically, the value of land use rights and land lease rights shall be determined in accordance with the provisions of the Vietnam Valuation Standards on the market approach, income approach, and real estate valuation.

The determination of the value of unidentifiable intangible assets (including brands and other unidentifiable intangible assets) shall be carried out as follows:

a) Estimating the market value of the assets of the enterprise being valuated (excluding unidentifiable intangible assets) that not involved in the process of generating income for the enterprise being valuated. The market value of these assets shall be determined in accordance with the provisions of Article 15 of this Standard and the guidelines in the Vietnam Valuation Standards;

b) Estimating the annual income that the enterprise being valuated can achieve, usually determined through the FCFF value prescribed in Clause 2, Article 19 of this Standard. This income level is the income level under normal operating conditions of the enterprise being valuated, estimated based on the results achieved by the enterprise being valuated in recent years, taking into account the development prospects of the enterprise after excluding abnormal factors affecting income such as gains or losses from the liquidation of fixed assets, revaluation of financial assets, and exchange rate risks.

c) Estimating appropriate rates of return for the assets of the enterprise being valuated (excluding unidentifiable intangible assets) that involved in the process of generating income for the enterprise being valuated. The rate of return on tangible assets shall not exceed the weighted average cost of capital of the enterprise being valuated. The rate of return on identifiable intangible assets shall not be lower than the weighted average cost of capital of the enterprise being valuated. The determination of the weighted average cost of capital of the enterprise being valuated shall be carried out in accordance with the guidelines in Article 20 of this Standard.

d) Estimating the annual income generated by the assets (of the enterprise being valuated but excluding unidentifiable intangible assets) that involved in the process of generating income for the enterprise being valuated by multiplying the value of these assets calculated at Point a of this Clause by (x) the corresponding rates of return determined at Point c of this Clause.

dd) Estimating the income generated by unidentifiable intangible assets for the enterprise being valuated by subtracting the income generated by the assets (of the enterprise being valuated but excluding unidentifiable intangible assets) that involved in the process of generating income for the enterprise being valuated calculated at Point d of this Clause from the income that the enterprise being valuated can achieve calculated at Point b of this Clause.

e) Estimating an appropriate capitalization rate for the income generated by unidentifiable intangible assets for the enterprise being valuated. This capitalization rate must be at least equal to the cost of equity of the enterprise being valuated. The determination of the cost of equity of the enterprise being valuated shall be carried out in accordance with the provisions of Clauses 6, 7, 8, and 9 of Article 20 of this Standard;

g) Estimating the value of unidentifiable intangible assets of the enterprise being valuated by capitalizing the portion of income generated by these intangible assets for the enterprise being valuated.

2. Method 2: Estimating the total value of intangible assets of the enterprise being valuated through capitalization of the income stream generated by all intangible assets for the enterprise being valuated.

a) Estimating the market value of the assets of the enterprise being valuated (excluding intangible assets) that involved in the process of generating income for the enterprise being valuated. The market value of financial assets and tangible assets shall be determined in accordance with the provisions of Article 15 of this Standard;

b) Estimating the annual income that the enterprise being valuated can achieve, usually determined through the FCFF value prescribed in Clause 2, Article 19 of this Standard. This income level is the income level under normal operating conditions of the enterprise being valuated, estimated based on the results achieved by the enterprise being valuated in recent years, taking into account the development prospects of the enterprise after excluding abnormal factors affecting income such as gains or losses from the liquidation of fixed assets, revaluation of financial assets, and exchange rate risks.

c) Estimating appropriate rates of return for the assets (of the enterprise being valuated but excluding intangible assets) that involved in the process of generating income for the enterprise being valuated. These rates of return must not exceed the weighted average cost of capital of the enterprise being valuated. The determination of the weighted average cost of capital of the enterprise being valuated shall be carried out in accordance with the guidelines in Article 20 of this Standard;

d) Estimating the annual income generated by the assets (of the enterprise being valuated but excluding intangible assets) that involved in the process of generating income for the enterprise being valuated by multiplying the value of these assets calculated at Point a of this Clause by the corresponding rates of return calculated at Point c of this Clause.

dd) Estimating the income generated by all intangible assets for the enterprise being valuated by subtracting the income generated by the assets (of the enterprise being valuated but excluding intangible assets) calculated at Point d of this Clause from the income that the enterprise being valuated can achieve calculated at Point b of this Clause;

e) Estimating an appropriate capitalization rate for the income generated by all intangible assets for the enterprise being valuated. This capitalization rate must be at least equal to the cost of equity of the enterprise being valuated. The determination of the cost of equity of the enterprise being valuated shall be carried out in accordance with the provisions of Clauses 6, 7, 8, and 9 of Article 20 of this Standard;

g) Estimating the total value of intangible assets of the enterprise being valuated by capitalizing the portion of income generated by intangible assets for the enterprise being valuated.

Article 17. Estimating the equity value of the enterprise being valuated

The equity value of the enterprise being valuated shall be determined using the following formula:

Where: The value of debt being valuated shall be determined at market value if there is market evidence, otherwise, it shall be determined based on value recorded in accounting books.

Chapter IV

INCOME APPROACH

Section 1.

DISCOUNTED CASH FLOW TO FIRM METHOD

Article 18. Discounted cash flow to firm method

1. The discounted cash flow to firm method determines the value of the enterprise being valuated by estimating the sum of the discounted free cash flow to firm of the enterprise being valuated and the present value of the non-operating assets of the enterprise at the valuation date.

2. Principles of implementation

In cases where the enterprise being valuated is a joint-stock company, the discounted cash flow to firm method shall be used with the assumption that the preferred shares of the enterprise being valuated are treated as common shares. This assumption should be clearly stated in the limitations section of the valuation certificate and valuation report.

3. The implementation of the discounted cash flow to firm method includes:

a) Forecasting the free cash flow to firm of the enterprise being valuated (FCFF);

b) Estimating the weighted average cost of capital of the enterprise being valuated (WACC);

c) Estimating the terminal value at the end of the forecast period (V_n);

d) Estimating the equity value of the enterprise being valuated (V₀).

Article 19. Forecasting the free cash flow to firm of the enterprise being valuation

1. The estimation of the cash flow forecast period shall be based on the characteristics of the enterprise, the business sector, and the economic context to select appropriate growth models. The minimum cash flow forecast period is 03 years. For newly established or rapidly growing enterprises, the cash flow forecast period may extend until the enterprise enters a steady growth phase. For enterprises with a limited operating period, the determination of the cash flow forecast period should assess and consider the enterprise's lifespan.

2. The formula for calculating the annual free cash flow to firm of the enterprise is the following formula and other formulas derived from this formula:

FCFF = Earnings Before Interest After Tax (EBIAT) + Depreciation and Amortization - Capital Expenditures - Changes in Net Working Capital Excluding Cash and Short-term Non-operating Assets (Net Operating Capital Changes)

a) Earnings before interest after tax (EBIAT) is the earnings before interest and taxes after deducting profits from non-operating assets.

The formula for calculating earnings before interest, taxes, depreciation and amortization (EBIAT) from earnings before interest and tax (EBIT) is as follows:

EBIAT = EBIT x (1 - t)

Where:

t: corporate income tax rate

In the period with financial statements, the effective tax rate shall be used to calculate EBIAT: t_Effective = (Pre-tax profit - After-tax profit) ÷ Pre-tax profit.

In the cash flow forecast period, the current corporate income tax rate shall be used to calculate EBIAT;

b) Capital expenditures include: expenditures on fixed assets and other long-term assets; expenditures on operating assets included in the purchase of debt instruments of other entities and expenditures on operating assets contributing capital to other entities (if any).

c) Formula for calculating working capital excluding cash and short-term non-operating assets:

Working capital excluding cash and short-term non-operating assets = (Short-term receivables + Inventory + Other short-term assets) - Short-term debt excluding short-term loans.

Article 20. Estimating the weighted average cost of capital of the enterprise being valuation

1. The weighted average cost of capital of the enterprise being valuated shall be estimated for each period or for the entire future cash flow forecast period to be used as a discount rate for the corresponding period when converting free cash flow and terminal value (if any) to the valuation date. The use of a single discount rate for the entire cash flow forecast period or the use of different discount rates for each cash flow forecast period shall be reasoned and clearly stated in the valuation report.

2. Formula for the weighted average cost of capital:

WACC = R_d x F_d x (1 - t) + R_e x F_e

Where:

WACC: Weighted Average Cost of Capital

R_d: Cost of debt

F_d: Debt-to-total capital ratio

t: Corporate income tax rate

R_e: Cost of equity

F_e: Equity-to-total capital ratio

Total capital refers to the sources of capital that finance the enterprise's operations, including equity and interest-bearing debt expected to finance the enterprise's operations during the cash flow forecast period. This debt includes both short-term and long-term debt, but must meet two conditions: it must incur interest costs and be expected to finance the enterprise's operations during the cash flow forecast period.

3. Estimating the debt-to-total capital ratio (F_d)

a) The debt-to-total capital ratio (F_d) is the ratio of interest-bearing debt expected to finance the enterprise's operations during the cash flow forecast period to total capital.

b) It is necessary to base on the type of valuation basis used and information provided by the enterprise being valuated on its capital use plan to analyze the enterprise's loans needs and capacity in the coming time, and assess the capital structure of companies in the same industry to estimate the ratio of interest-bearing debt expected to finance the enterprise's operations during the cash flow forecast period. At the same time, it is necessary to assess and consider the estimation of R_d corresponding to the discount rate (WACC) of each period in the cash flow forecast period of the enterprise being valuated.

c) The debt-to-total capital ratio (F_d) shall be determined based on the consideration and assessment of the ratio of interest-bearing debt to total capital of enterprises in the same industry as the enterprise being valuated or determined according to the ratio of interest-bearing debt to total capital of the enterprise being valuated in recent years, taking into account the future capital structure.

In cases where the enterprise being valuated is an enterprise listed on the Vietnam stock market for at least 03 years prior to the valuation date: assess and consider based on the ratio of interest-bearing debt to total capital of the appraised enterprise in recent years, taking into account the future capital structure.

4. Estimating the cost of debt (R_d)

The cost of debt (R_d) shall be determined based on the cost of debt of the interest-bearing debt expected to finance the operations of the enterprise being valuated during the cash flow forecast period.

In cases where there is no interest-bearing debt in the capital structure of the enterprise being valuated, R_d shall be determined based on the expected interest rate. The expected interest rate is the estimated interest rate based on the assessment of the bargaining power of the enterprise being valuated with credit providers or the long-term loan rates of enterprises in the same industry as the enterprise being valuated.

In cases where the enterprise being valuated has interest-bearing debt, R_d shall be determined according to this cost of debt or the expected interest rate mentioned above; at the same time, an assessment and consideration shall be made to estimate R_d appropriately. In cases where the enterprise has multiple debts with different costs of debt (such as different interest rates), R_d shall be determined by the weighted average interest rate of the enterprise's debts.

5. Estimating the Equity-to-Total Capital Ratio

The equity-to-total capital ratio shall be determined using the formula:

F_e = (1 − F_d)

6. Estimating the Cost of Equity (R_e)

The cost of equity (R_e) shall be estimated using one of the three methods prescribed in Clauses 7, 8, and 9 of this Article.

7. Method 01 for estimating the Cost of Equity (R_e)

a) Conditions for application: This method is applicable when there are at least 03 enterprises in the same industry as the enterprise being valuated that have listed shares or registered for trading on the Vietnam stock market; or the enterprise being valuated is an enterprise listed on the Vietnam stock market for at least 03 years prior to the valuation date.

b) In cases where Method 01 is not applied, the reasons for not choosing this method must be stated with justifications in the valuation report, and Method 02 or Method 03 as prescribed in Clauses 8 and 9 of Article 20 of this Standard shall be selected.

c) General formular:

R_e = R_f + β_L x MRP

Where:

R_f : Risk-free rate at or near the valuation date

MRP: Market risk premium

β_L: Levered beta of the enterprise being valuated

The risk-free rate (R_f) shall be estimated based on the yield of 10-year government bonds or the longest-term government bonds at or near the valuation date.

The market risk premium (MRP) shall be estimated by averaging the differences between the rate of return on investment in the stock market (R’_m) at the last trading session of each month and the risk-free rate (R’_f). R’_f shall be determined based on the yield of 10-year government bonds or the longest-term government bonds at or near the time of determining R’_m. The expected rate of return on investment in the Vietnam stock market shall be estimated using the statistical method based on the VN-INDEX in the period of at least 05 years closest to the valuation date. The VN-INDEX shall be recorded monthly, specifically the closing index of the last trading session of the month.

- The determination of the levered beta (βL) taking into account the impact of capital structure shall be carried out using the method of regression analysis of the adjusted reference share price volatility with the market price volatility.

d) The determination of the levered beta (βL) taking into account the impact of capital structure shall be carried out using the method of regression analysis of the adjusted reference share price volatility with the market price volatility according to the following formula:

In which, the price volatility shall be determined monthly and for at least 5 years (for enterprises without sufficient data for 5 years, it is calculated from the date the enterprise is listed or registered for trading), the market return shall be calculated based on the VN-INDEX.

In cases where there is a basis and evidence of βL published in the market under conditions where the calculation is performed similarly as above, this published βL can be used.

dd) The levered beta (βL) taking into account the impact of capital structure shall be estimated as follows:

- In cases where the enterprise being valuated is an enterprise listed on the Vietnam stock market for at least 03 years prior to the valuation date: assess and consider determining βL from the trading prices of the shares of the enterprise being valuated in the years near the valuation date or determining βL according to similar enterprises in the same business line, and provide reasoning for the selection of this calculation method in the valuation report.

- In other cases: select at least 03 enterprises in the same business line as the enterprise being valuated on the stock market and determine the levered beta (βL) of the enterprise being valuated through the βL of these enterprises.

e) When there are differences in capital structure between the enterprise being valuated and enterprises in the same industry, it is necessary to adjust the beta of the comparable enterprises to reflect the capital structure of the enterprise being valuated. This adjustment includes:

- Removing the impact of capital structure on the levered beta using the formula:

Where:

β_U: Unlevered beta

: Ratio of interest-bearing debt to equity of enterprises in the same industry as the enterprise being valuated.

D/E shall be calculated on average over the same number of years of data collection used to calculate βL

t: Corporate income tax rate

- Calculating the average unlevered beta of enterprises in the same industry as the enterprise being valuated.

- Estimating the levered beta (βL) of the enterprise being valuated using the formula:

βL _appraised = βU _average x

Where:

βL _appraised: Levered beta of the enterprise being valuated

βU _average: Average unlevered beta

D/E: Ratio of interest-bearing debt to equity of the enterprise being valuated.

The D/E ratio should reflect the future financial leverage and can be determined based on the D/E ratio at the valuation date.

t: Enterprise income tax rate

8. Method 2 for estimating the cost of equity (R_e)

a) General formula:

R_e = R_{f US} + βL x MRP _US + Country risk premium + Exchange rate risk premium (if any)

Where:

- R_{f US}: Risk-free rate estimated based on the yield of 10-year US government bonds or the longest-term US government bonds at or near the valuation date.

- MRP _US: Market risk premium of the US stock market.

- β_L: Leveraged beta of enterprises in the same industry as the enterprise being valuated in the US market, adjusted for the capital structure of the enterprise being valuated.

b) The determination of R_e shall be carried out based on the assessment, reasoning, and adjustment of R_e based on size, liquidity, and other relevant factors to reflect the specific risks of the enterprise being valuated.

9. Method 3 for estimating the cost of equity (R_e)

General formula:

R_e = R_f + R_p

- Risk-free rate shall be based on the yield of 10-year government bonds or longest-term government bonds at or near the valuation date.

- Equity risk premium shall be determined based on the equity risk premium of Vietnam as published in reliable international financial databases.

The determination of R_e shall be carried out based on the assessment, reasoning, and adjustment of R_e based on size, liquidity, and other relevant factors to reflect the specific risks of the enterprise being valuated.

Article 21. Estimating the terminal value

1. Case 1: The cash flow after the forecast period is a perpetuity with no growth.

Formula for calculating the terminal value:

Where:

FCFF_n+1: Free cash flow to firm in year n + 1

2. Case 2: The cash flow after the forecast period is a cash flow that grows at a constant rate each year into perpetuity.

Formula for calculating the terminal value:

Where:

g: growth rate of cash flow

The growth rate of cash flow shall be determined based on the growth rate of profit. The growth rate of profit shall be forecasted based on the assessment of the enterprise's development prospects, the enterprise's past profit growth rates, the production and business plan, the reinvestment rate, and the retention ratio.

3. Case 3: The enterprise ceases operations at the end of the forecast period. The terminal value shall be determined based on the liquidation value of the enterprise being valuated.

Article 22. Estimating the equity value of the enterprise being valuated

1. Calculating the total present value of free cash flows and the terminal value after discounting the enterprise's free cash flows and the enterprise's terminal value at the discount rate, which is the weighted average cost of capital.

2. Estimating the value of the enterprise's non-operating assets in accordance with the guidelines for determining the value of tangible assets, intangible assets, and financial assets in this Standard and relevant Vietnam Valuation Standards.

3. Estimating the equity value of the enterprise being valuated at the valuation date by adding the present value of the enterprise's free cash flows and the terminal value to the value of the enterprise's non-operating assets, minus the value of interest-bearing debt and non-interest-bearing debt recorded on the financial statements related to the formation of non-operating asset value at the valuation date (if any but not yet reflected in the enterprise's annual free cash flow).

Section 2.

DISCOUNTED CASH FLOW TO EQUITY METHOD

Article 23. Discounted cash flow to equity method

1. The discounted cash flow to equity method determines the equity value of the enterprise being valuated by estimating the sum of the discounted free cash flow to equity of the enterprise being valuated.

2. Principles of Implementation

In cases where the enterprise being valuated is a joint-stock company, the discounted free cash flow to equity method shall be used with the assumption that the preferred shares of the enterprise being valuated are treated as common shares. This assumption should be clearly stated in the limitations section of the valuation certificate and valuation report.

3. The implementation of the discounted cash flow to equity method includes:

a) Forecasting the free cash flow to equity of the enterprise being valuated (FCFE);

b) Estimating the cost of equity of the enterprise being valuated (Re);

c) Estimating the terminal equity value (Vn);

d) Estimating the equity value of the enterprise being valuated (V0).

Article 24. Forecasting the free cash flow to equity of the enterprise being valuated

1. The estimation of the cash flow forecast period shall be based on the characteristics of the enterprise, the business sector, and the economic context to select appropriate growth models. The minimum cash flow forecast period is 03 years. For newly established or rapidly growing enterprises, the cash flow forecast period may extend until the enterprise enters a steady growth phase. For enterprises with a limited operating period, the determination of the cash flow forecast period should assess and consider the enterprise's lifespan.

2. Formula for calculating the free cash flow to equity of the enterprise:

FCFE = Net Income + Depreciation and Amortization - Capital Expenditures - Changes in Net Working Capital Excluding Cash and Short-term Non-operating Assets (Net Operating Capital Changes) - Debt Principal Repayments + New Debt Issuances

a) Net Income is the after-tax profit excluding profits from non-operating assets.

b) Capital expenditures include: expenditures on fixed assets and other similar long-term assets that do not meet the criteria for recognition as fixed assets in accordance with the enterprise's accounting policies; expenditures on other long-term operating assets included in the purchase of debt instruments of other entities and expenditures on capital contributions to other entities (if any).

c) Formula for calculating working capital excluding cash and short-term non-operating assets:

Working capital excluding cash and short-term non-operating assets = (Short-term receivables + Inventory + Other short-term assets) - Short-term debt excluding short-term loans.

Article 25. Estimating the cost of equity of the enterprise being valuated

The estimation of the cost of equity of the enterprise being valuated shall be carried out in accordance with the guidelines in Clauses 6, 7, 8, and 9 of Article 20 of this Standard.

Article 26. Estimating the terminal equity value

1. Case 1: The cash flow after the forecast period is a perpetuity with no growth. Formula for calculating the terminal value:

Where:

FCFE_n+1: Free cash flow to equity in year n + 1

2. Case 2: The cash flow after the forecast period is a cash flow that grows at a constant rate each year into perpetuity. Formula for calculating the terminal value:

Where:

g: growth rate of cash flow

The growth rate of cash flow to equity shall be forecasted based on the growth rate of after-tax operating profit, the enterprise's development prospects, the enterprise's past cash flow growth rates, the production and business plan, and the reinvestment rate.

3. Case 3: The enterprise ceases operations at the end of the forecast period. The terminal value shall be determined based on the liquidation value of the enterprise being valuated.

Article 27. Estimating the equity value of the enterprise being valuated

1. Calculating the total net present value of the free cash flow to equity and the terminal equity value of the enterprise after discounting the free cash flow to equity and the terminal equity value of the enterprise at the discount rate, which is the cost of equity.

2. Estimating the value of the enterprise's non-operating assets in accordance with the guidelines for determining the value of tangible assets, intangible assets, and financial assets in this Standard and relevant Vietnam Valuation Standards.

3. Estimating the equity value of the enterprise being valuated by adding the net present value of the free cash flow to equity and the present value of the terminal equity value to the value of non-operating assets, then subtracting the value of non-interest-bearing debt recorded on the financial statements related to the formation of non-operating asset value at the valuation date (if any but not yet reflected in the enterprise's free cash flow to equity).

Section 3.

DISCOUNTED DIVIDEND METHOD

Article 28. Discounted dividend method

1. The discounted dividend method determines the equity value of the enterprise being valuated by estimating the sum of the discounted dividends of the enterprise being valuated. The discounted dividend method is typically applied in cases where the dividends of the enterprise being valuated can be forecasted.

2. Principles of implementation

In cases where the enterprise being valuated is a joint-stock company, the discounted dividend method shall be used with the assumption that the preferred shares of the enterprise being valuated are treated as common shares. This assumption should be clearly stated in the limitations section of the valuation certificate and valuation report.

3. The implementation of the discounted dividend model includes:

a) Forecasting the dividends of the enterprise being valuated (D);

b) Estimating the cost of equity of the enterprise being valuated (R_e);

c) Estimating the terminal equity value (V_n);

d) Estimating the equity value of the enterprise being valuated (V₀).

Article 29. Forecasting the dividends of the enterprise being valuated

1. Forecasting the dividends of the enterprise being valuated includes forecasting the dividend payout ratio and the dividend growth rate of the enterprise being valuated.

2. Basis for estimating the dividend forecast period: characteristics of the enterprise, the business sector, and the economic context to select appropriate growth models.

3. The minimum dividend forecast period is 03 years.

4. For newly established or rapidly growing enterprises, the dividend forecast period may extend until the enterprise enters a steady growth phase. For enterprises with a limited operating period, the dividend forecast period shall be determined based on the enterprise's lifespan.

Article 30. Estimating the cost of equity of the enterprise being valuated

The estimation of the cost of equity of the enterprise shall be carried out in accordance with the guidelines in Clauses 6, 7, 8, and 9 of Article 20 of this Standard.

Article 31. Estimating the terminal equity value

1. Case 1: The dividend after the forecast period is a perpetuity with no-growth. Formula for calculating the terminal value:

2. Case 2: The dividend after the forecast period is a cash flow that grows at a constant rate each year into perpetuity. Formula for calculating the terminal value:

Where:

D_n+1: Dividend in year n + 1

g: growth rate of dividends

The growth rate of dividends shall be forecasted based on the retention ratio, the return on equity.

3. Case 3: The enterprise ceases operations at the end of the forecast period. The terminal value shall be determined based on the liquidation value of the enterprise being valuated.

Article 32. Estimating the equity value of the enterprise being valuated

1. Calculating the total net present value of the enterprise's dividends and the terminal equity value after discounting the enterprise's dividends and the terminal equity value at the discount rate, which is the cost of equity.

2. Estimating the value of the enterprise's non-operating assets in accordance with the guidelines for determining the value of tangible assets, intangible assets, and financial assets in this Standard and relevant Vietnam Valuation Standards.

3. Estimating the equity value of the enterprise being valuated by adding the net present value of the enterprise's dividends and the present value of the terminal equity value to the value of non-operating assets, then subtracting the value of non-interest-bearing debt recorded on the financial statements related to the formation of non-operating asset value at the valuation date (if any).

Article 33. Other cases

For matters not specifically provided for in this Standard, the provisions of the Vietnam Valuation Standards on the Income Approach shall apply./.