Purpose, evidence and asset-valuation approaches
A valuation needs a defined subject, purpose, date, basis and scope of work. Valuing an asset for a hypothetical transaction can differ from estimating a financial-reporting amount, an insured value or a particular owner's investment value. Identify the rights and interests being measured, restrictions, assumptions and the information available at the valuation date. A market price observed elsewhere is evidence, not automatically the value of the subject. Current national state-asset procedures, professional authorizations and reporting obligations require their own sources.
The market approach uses relevant transaction or comparable evidence. Examine location, condition, capacity, date, rights, financing terms and whether a transaction was representative of the stated basis. Adjustments need an economic explanation supported by evidence, not arbitrary percentages selected to reach a desired figure. A small number of superficially similar observations can produce misleading confidence. For a business multiple, define the numerator and denominator consistently and distinguish enterprise-level measures from equity-level measures. Leverage, unusual earnings and accounting differences affect comparability.
The income approach connects anticipated economic benefits with value. State whether cash flows belong to equity holders or all capital providers, and match the discount rate accordingly. Include timing, expected operating performance, reinvestment and working capital coherently. Do not deduct financing costs in a cash flow and then apply a discount rate that counts the same financing effect again. A terminal value can dominate a model, so test growth and rate assumptions. Scenario and sensitivity analysis clarify uncertainty but do not transform an uncertain forecast into a market fact.
The cost approach examines the cost of obtaining equivalent service potential and relevant depreciation or obsolescence. Physical deterioration differs from functional and external economic obsolescence. An old asset does not necessarily lose utility at the same pattern as accounting depreciation. Replacement cost is not always identical to reproduction cost, and spending on construction does not prove the resulting asset is worth that amount. Use the actual purpose and evidence when assessing whether this approach is suitable.
Reconcile indications by considering evidence quality, relevance and model consistency. A simple arithmetic average is not automatically justified. Document material assumptions, inspections, information limitations, work performed and the reasoning behind the conclusion. Independence, competence, confidentiality and conflicts of interest matter because users can be misled by advocacy presented as an objective estimate. Distinguish a hypothetical special assumption from an established fact. A supplied exercise value is not a current market quotation. This common chapter supports asset and business valuation foundations without asserting that international terminology automatically satisfies Chinese licensing law, a local accounting measurement rule or a particular mandated report form.