IRC 409A Common Stock Valuation
This free, guided checker walks your team through the key decision points for IRC 409A Common Stock Valuation. Answer a few questions to see the likely approach and the evidence to document.
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Selecting Income, Market, and Asset Approaches
This free, guided checker walks your team through the key decision points for Selecting Income, Market, and Asset Approaches. Answer a few questions to see the likely approach and the evidence to document.
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This tool is a high-level valuation screening aid for general information only and is not a valuation, appraisal, accounting, tax or legal opinion. A defensible conclusion of value requires a qualified valuation specialist applying professional standards to entity-specific evidence.
The questions this tool walks you through
Here is what the checker asks and why each step matters. Prefer to talk it through? Contact us and we will help directly.
Have the basis of value and the premise of value already been established for this engagement?
The same interest can carry different values under different bases, and the premise determines which approaches are even admissible. Fix the standard and premise first; selecting an approach before the basis is set inverts the analysis and is not defensible.
Establish the basis and premise of value under IVS 104 (Bases of Value) before selecting approaches under IVS 105 (Valuation Approaches and Methods).
Official guidance: International Valuation Standards
Which best describes the primary source of the subject entity's value?
Rev. Rul. 59-60 Section 5 ties the weighting of approaches to the character of the company: earnings dominate for operating companies, while asset values dominate for investment and holding companies. Classify the entity by where its value actually comes from, not by its legal form.
Test the income approach for an earnings-driven company. Test the asset approach for a holding or investment entity. Test whether a reliable income measure exists for an early-stage entity. Test the income approach and plan to add a separate asset measure for non-operating assets.
Official guidance: International Valuation Standards
Is there a reliable basis to measure the entity's future economic benefits - either supportable prospective financial statements for a discounted cash flow method or a normalized, sustainable earnings level for a capitalization method?
The income approach needs a credible measure of expected returns and a supportable discount or capitalization rate. Test whether forecasts are grounded in the entity's real prospects and whether earnings can be normalized for non-recurring items; speculative projections make the income indication unreliable.
Use the interactive tool above to see how this applies to your situation.
Official guidance: International Valuation Standards
Does the entity's value derive primarily from identifiable assets that can be individually valued - a holding or asset-intensive entity, or one under a liquidation premise - so that a net asset value build-up is the most reliable indication?
The asset approach suits holding companies, asset-intensive businesses, and liquidation scenarios, and can be applied without forecasts or comparables. For an operating going concern it often understates value because it omits assembled intangible and goodwill value, so confirm the premise before relying on it.
Develop the asset (net asset value) approach, restating assets and liabilities to current value under IVS 105 (Valuation Approaches and Methods).
Official guidance: International Valuation Standards
What guideline market data is available to develop or corroborate a market approach indication?
The market approach requires comparables that are genuinely similar in line of business, size, growth, and risk, with reliable pricing. Screen candidate guideline companies and transactions for comparability and data quality before relying on their multiples, because weak comparables produce a misleading indication.
Develop guideline public company multiples and weigh them against the income indication. Develop transaction multiples and weigh them against the income indication. Conclude on the income approach as the sole weighted indication where no reliable guideline market data exists, under IVS 105 (Valuation Approaches and Methods).
Official guidance: International Valuation Standards
Is reliable guideline market data available - actively traded comparable public companies or arm's-length transactions in comparable interests - to support a market approach indication?
On this path the income approach lacks a dependable input, so the market approach is tested next; where comparables are also weak, the asset approach remains because it needs neither forecasts nor comparables. Match the fallback to the data that actually exists rather than forcing an approach without support.
Develop the market approach from comparable companies or transactions under IVS 105 (Valuation Approaches and Methods). With no income or market inputs, develop the asset (cost) approach as the remaining supportable indication under IVS 105 (Valuation Approaches and Methods).
Official guidance: International Valuation Standards
Is the market-derived indication reliable enough to receive weight in the conclusion, rather than serving only as a cross-check on the income approach?
More than one approach should be used where it strengthens the conclusion, but the indications are reconciled by judgment about the reliability of each approach's inputs, not by mechanical averaging, which Rev. Rul. 59-60 Section 7 specifically cautions against. Decide whether the market indication is robust enough to move the answer.
Develop both approaches and reconcile the indications by reasoned weighting under IVS 105 (Valuation Approaches and Methods) and Rev. Rul. 59-60 Section 7. Weight the income approach and use the market result only as corroboration under IVS 105 (Valuation Approaches and Methods).
Official guidance: International Valuation Standards
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