Income: future economic benefit
An income approach relates value to expected economic benefits. Discounted cash flow analysis brings forecast cash flows to a valuation date using a rate consistent with their risk. The forecasts, terminal assumptions and discount rate should work together as a coherent model.
Market: evidence from comparable businesses
A market approach considers pricing evidence from comparable companies or transactions. Comparability requires judgement about scale, growth, profitability, risk and the date of the evidence. A multiple is meaningful only when the financial measure and value being compared are consistent.
Assets: the underlying economic resources
An asset approach considers assets and liabilities on a basis appropriate to the engagement. It may be relevant for asset-holding entities or other circumstances in which the underlying resources are central. Book values are not automatically current values. Where multiple approaches are used, their reconciliation needs a reasoned explanation.
Further reading
NYU Stern · Valuation resources (opens in a new tab)IVSC · International Valuation Standards (opens in a new tab)For general understanding. The appropriate method, professional appointment and regulatory treatment depend on the purpose, date and circumstances of the engagement.