Defining the Scope of the Valuation
The scope of a valuation defines what is being valued, at which date, on which basis of value and with what information, before any calculation begins.
We begin every engagement by defining exactly what is being valued. Depending on the engagement, the subject may be the entire business, a specific shareholding or the rights attached to that interest. The valuation date, basis of value and available information are established at the same stage.
The International Valuation Standards provide a consistent framework for this work. Businesses and business interests are addressed under IVS 200. The standards set out principles for presenting the data, assumptions and valuation approach in a clear and traceable manner.
This framework allows management, shareholders and potential investors to see how the conclusion was formed and which assumptions have the greatest influence on it.
Which IVS Standards Apply to a Company Valuation
The International Valuation Standards are organised into General Standards, which apply to every valuation, and Asset Standards, which add requirements for a particular asset class. In the edition effective 31 January 2025 the General Standards were renumbered.
| Standard | Title |
|---|---|
| IVS 100 | Valuation Framework |
| IVS 101 | Scope of Work |
| IVS 102 | Bases of Value |
| IVS 103 | Valuation Approaches |
| IVS 104 | Data and Inputs |
| IVS 105 | Valuation Models |
| IVS 106 | Documentation and Reporting |
| IVS 200 | Businesses and Business Interests |
A company valuation follows the General Standards in full and adds IVS 200 for the business itself. Two standards from the previous edition, IVS 102 Investigations and Compliance and IVS 103 Reporting, were removed, and the valuation approaches moved from IVS 105 to IVS 103. Referring to the current numbering keeps each section of a valuation report traceable to the standard it relies on.
From Reported Results to Underlying Performance
Normalisation adjusts reported EBITDA for one-off, non-operating and shareholder-related items so that the figure reflects the earnings the business can sustain under normal operating conditions.
Financial statements form the starting point of the valuation. EBITDA derived from tax filings and financial statements reflects the operating result recorded under the applicable accounting framework. We then isolate the portion of that performance we expect to continue under normal operating conditions.
We review one-off income and expenses, non-operating items, shareholder-related costs and transactions that are not on market terms as part of this analysis. Adjustments may increase or decrease reported performance, depending on the nature of each item. This produces a financial base that more closely reflects the company’s ongoing operations.
| Adjustment | Example | Effect on EBITDA |
|---|---|---|
| One-off income and expenses | Gain on the sale of a fixed asset, a one-time legal settlement | Removed |
| Non-operating items | Rental income from an investment property held outside the business | Removed |
| Shareholder-related costs | Above-market salaries, private vehicles, family members on payroll | Added back |
| Related-party transactions not on market terms | Purchases from an affiliate priced above or below market | Restated to market terms |
| Accounting basis differences | Lease accounting under TFRS 16 versus the treatment under VUK | Aligned across periods and peers |
| Discontinued operations | A product line closed during the year | Removed |
Differences between the Turkish Tax Procedure Law (VUK) and Turkish Financial Reporting Standards (TFRS) also require consistent treatment. For example, lease accounting under TFRS 16 may affect both EBITDA and net debt. Aligning the accounting basis improves comparability across periods and against peer companies.
The Commercial Context Behind the Financials
The commercial review tests whether the financial projections are consistent with the company’s customers, contracts, capacity, supply structure and working capital cycle.
Historical performance is an important part of the analysis. The commercial conditions behind that performance provide the context for assessing how it may develop in the future.
Customer concentration, contract duration, recurring orders, capacity utilisation, investment requirements and the working capital cycle all influence the company’s risk profile. Dependence on key managers or critical suppliers may also affect the resilience of operations.
These factors help determine whether the financial projections are consistent with the company’s operating model and current market position.
The Three Valuation Approaches
IVS 103 sets out three approaches to value: the income approach, the market approach and the cost approach. A company valuation normally applies more than one, using a single approach as the primary basis and the others as a cross-check.
| Approach | What it measures | Common methods | Typical use |
|---|---|---|---|
| Income approach | The present value of the cash flows the business is expected to generate | Discounted cash flow (DCF) | Established operations with a supportable budget |
| Market approach | The value the market attributes to comparable companies and transactions | Trading multiples (EV/EBITDA, EV/Sales, P/E, P/B), precedent transaction multiples | Sectors with genuinely comparable listed peers or deal activity |
| Cost approach | The current value of the assets less the liabilities attached to them | Net asset value, replacement cost | Asset-heavy businesses, property and investment holdings |
Which approach carries the most weight depends on how the company earns its money, which assets it relies on and how reliable its projections are. We set this out in detail in our article on valuation methods and how the appropriate method is selected.
The Role of Valuation in a Transaction
In a transaction, the valuation sets the financial basis for negotiation, and the bridge from enterprise value to equity value determines what a shareholder actually receives at closing.
A valuation provides a reasoned conclusion based on the agreed scope and assumptions. In a company sale, it becomes part of the financial basis for negotiations.
When we move from enterprise value to equity value we take account of net debt, excess cash, working capital and non-operating assets. The payment structure, including deferred consideration or performance-linked payments, also shapes the economics of the transaction.
This distinction separates the value generated by the underlying business from terms that are specific to the transaction. Shareholders can therefore identify which elements arise from operating performance and which are driven by the deal structure.
Company valuation brings financial records, commercial considerations and the purpose of the transaction into a single analysis. The International Valuation Standards provide the framework for presenting its scope, assumptions and conclusion clearly to the parties involved.
Frequently asked questions
What is a company valuation?
A company valuation is an independent assessment of what a business, or a specific interest in it, is worth at a given date, prepared under a defined scope and basis of value. It brings together the financial results, the commercial structure behind them and the purpose of the engagement, and it produces a reasoned value range rather than a single indisputable price.
Which international standards apply to a company valuation?
The General Standards IVS 100 to IVS 106 apply to every valuation, covering the framework, scope of work, bases of value, valuation approaches, data and inputs, models, and documentation and reporting. IVS 200 Businesses and Business Interests adds the requirements specific to valuing a company. This numbering reflects the edition effective 31 January 2025.
Can the EBITDA in the financial statements be used directly?
Rarely. Reported EBITDA reflects the accounting framework applied, not the earnings capacity of the business. One-off items, non-operating income, shareholder-related costs and related-party transactions priced away from market terms all need to be adjusted first. Differences between VUK and TFRS, such as lease accounting under TFRS 16, must also be treated consistently across periods and against peer companies.
Does a valuation determine the sale price?
No. A valuation establishes a defensible range and the assumptions behind it. The price is set in negotiation and is shaped by investor competition, due diligence findings, the payment structure, deferred consideration and earn-outs, and any synergies specific to the buyer.
