As a starting point, the valuer must carefully consider and define the nature of the assignment at hand. Firstly, one must ascertain what is to be valued, when (ie, the date of the valuation), and why (ie, the purpose of the valuation).

Following on from this, consideration must be given to the valuation basis (the definition or 'standard' of value to be used for the purposes of the engagement — eg, market value or fair value), and to the premise under which the valuation is to be prepared (which describes the set of transactional circumstances likely to apply — eg, going concern, orderly liquidation, or forced sale).

These matters are covered by the following International Valuation Standards:

• IVS 101 — Scope of Work;
• IVS 102 — Bases of Value;
• Asset Standards (additional requirements for particular kinds of assets).

In some situations the basis of value is legally mandated, either by statute (the Taxation of Chargeable Gains Act 1992, Section 272, for example) or by contracts. In other cases it is specified by accounting standards (FRS 102 or IFRS 13, for example).

Below, we highlight a selection of resources which provide further information around this essential preliminary work.

Having settled on the basis (or bases) and premise of value, the valuer must select and apply a suitable valuation approach and method(s).

The most appropriate approach and method(s), and the assumptions and data involved their implementation, will depend upon the nature of the assignment at hand. In certain cases, a particular valuation approach may be required by law or some other authority. In any case, it is very important that the approach and method(s) chosen for a particular assignment are consistent with the definition of value being adopted.

Here, reference should be made to relevant valuation standards, including:

• IVS 103 — Valuation Approaches;
• IVS 104 — Data and Inputs;
• IVS 105 — Valuation Models;
• Asset Standards (as applicable).

Where appropriate, it may also be helpful to consult the International Private Equity and Venture Capital Valuation Guidelines.

There are three accepted valuation approaches, as set out in IVS 103. These are the market approach, the income approach, and the cost approach. Under each of these approaches there are various methods. Often, one or more secondary methods are used to cross-check the primary method.

The main methods likely to be of relevance to valuers of businesses and shares are summarised in the table below, followed by a selection of in-depth resources on this topic.

Particular kinds of assets, instruments, and interests may pose distinctive questions and challenges from a valuation perspective. This is reflected in the eight Asset Standards issued by the International Valuation Standards Council — each of which sets out requirements pertaining to a specific type of asset.

Equally, those tasked with undertaking valuations in particular contexts may have to navigate unusual sets of issues.

Below, we set out a selection of resources which provide information on various specialised valuation tasks. The Library also maintains a dedicated page containing information and resources on the Black-Scholes option pricing model.

There are many sources which one might consult in search of companies which are comparable with the one to be valued. The most appropriate source(s) will depend to a large extent on the nature of the company, the sector in which it operates, and so on.

Some frequently used sources are:

• FAME (available through the Library);
• Trade directories and magazines, such as Dun & Bradstreet’s Key British Enterprises;
• Trade associations;
• Special reports, such as those produced by Mintel and IBISWorld;
• SEDOL;
• Financial Times London Share Service;
• Company accounts, as filed with Companies House.

Additional sector-specific sources may be found in the Library’s industry guides.

Price multiples are often used as inputs in valuation calculations, and are available from several sources. However, these sources differ in their respective methodologies, and so care ought to be taken to ensure that any data obtained are appropriate for your needs.

The Library has access to data via BVB Insights on the multiples paid for UK private businesses to help with your business valuations:

• Private company multiples
  

  BVB Insights report providing data on 11 sectors and over 40 sub-sectors, plus commentary on current trends and expected developments. An in-depth overview is available to ICAEW members, Business and Finance Professionals, ACA students and Forensic & Expert Witness/Valuation Community subscribers. 

We also maintain two pages setting out a wider selection of sources:

• Price indexes (for Valuation Community members)
• Finding price/earnings ratios

In addition, multiples may also be available from general providers of financial information such as LSEG and Bloomberg.

Beta values are often used as part of calculating the cost of equity. This cost is then an important input into the discount rate used in discounted cash flow calculations.

The Library enquiry service can provide beta values to ICAEW members, ACA students and other entitled users. For more information, and for general pointers on where to find beta values, see our research guide on the topic:

• Finding beta values for companies and sectors

In some situations, valuers look at the price at which the shares of a quoted company are changing hands, and use this in calculating the value of a similar unquoted company.

A range of sources for current and historical share prices – both UK and international – are listed in two dedicated Library research guides:

• Finding current and historical UK share prices
• Finding international share prices

When undertaking a valuation assignment, one must consider wider factors such as the state of the local and global economy, as well as factors relating to the specific business being valued.

Links to sources of data on activity in the economy and within particular industry sectors can be accessed via our economic data hub page, and through our industry guides.

The Library also maintains dedicated research guides on:

• Finding UK bank base rates
• Researching the RPI, CPI, and CPIH
• Finding current and historical exchange rates

Those tasked with preparing a valuation for submission to HMRC may need to value a holding of unquoted shares as at 31 March 1982.

An invaluable set of statistics and data for valuations as at 31 March 1982 can be found in Section F of Valuation of Unquoted Companies by C.G. Glover (5th ed., 2009). This contains the following sub-sections:

• F.1 – FT-Actuaries Share Indices as at 31 March 1982
• F.2 – FT-Actuaries Fixed Interest Indices as at 31 March 1982
• F.3 – Selected investment statistics (including fully taxed P/E ratios) for constituents of the FT-Actuaries All-Share Index as at 31 March 1982
• F.4 – Classification of listed companies (ie, Index and non-Index), by industry sector
• F.5 – Merger and acquisition activity, 1981 and 1982, as reported by the Stock Exchange
• F.6 – Selected UK economic indicators 1977 to 1981
• F.7 – London Clearing Bank Base Rate 1977 to 1982
• F.8 – Sterling exchange rates 1977 to 1981

Also of use is the publication CGT- capital gains; the key figures for calculating your tax (Financial Times, 1985), which reproduces tables from the Financial Times on 1 April 1982, showing share prices for 31 March 1982. Share prices are listed exactly as they were printed in the original edition.

Many important principles have emerged from decided court cases relating to the valuation of businesses, shares, and associated assets. Judges have, for example, commented on the suitability of particular valuation methods for certain sets of circumstances, and on the kind of data which it might be appropriate to use in valuation calculations.

It is therefore important for valuers to keep up-to-date with case law developments relevant to their work, given that previous decisions are open to challenge, and new principles may emerge over time.

The ICAEW Library & Information Service maintains a page for Valuation Community members which lists key valuation cases:

• Valuation Community legal cases
  

  A library of key valuation cases, with links to judgments and details of related articles in the Library collection.

The Library also holds a number of books containing information on case law in this area, including:

• Division A, Part 1: ‘Case law’ in N. Eastaway et al., Practical share valuation, 7th ed. (2019) — also available to eligible firms via the Bloomsbury Accounting and Tax Service
• N. Eastaway et al., Share valuation cases, 2nd ed. (1994)

In certain fields there are industry-specific customs and rules of thumb which apply when businesses change hands. Often, these focus on recurring income rather than on profits.

For example, there is a convention that dry cleaning businesses be valued by reference to a multiple of annual gross sales, whilst trust companies tend to be valued by reference to a multiple of gross fees.

A list of such rules of thumb is given by David Bowes in Tolley's Practical Share and Business Valuation (2012), p.150.

It is important to bear in mind that these rules of thumb may not take account of differences between companies in the same industry.

Generally, the results of a valuation assignment will be set out in a report. Requirements pertaining to valuation reports and documentation are set out in IVS 106 — Documentation and Reporting.

Several template valuation reports are included in reference works held in the ICAEW Library collection, such as Tolley's Practical Share and Business Valuation (2012) and the Corporate Finance Manual. To find out how you can borrow books from the Library please see our guide to borrowing books. You can also obtain copies of articles or extracts of books and reports through our document supply service.

In addition, a selection of online resources which may assist those tasked with writing business valuation reports is set out below.