International Valuation Glossary Business Valuation
嚜澠NTERNATIONAL VALUATION GLOSSARY 每
BUSINESS VALUATION
DRAFT - IN CONSULTATION
[date of draft and effective as of: December 14, 2020]
PURPOSE
The performance of business valuation services requires a high degree of skill and imposes upon
the valuation professional a duty to communicate the valuation process and conclusion, in a manner
that is clear and not misleading. This duty is advanced through the use of terms whose meanings
are clearly established and consistently applied throughout the profession.
To enhance and sustain the quality of business valuations internationally for the benefit of the public
at large and the business valuation profession, the following identified societies and organizations
have worked collaboratively to create the definitions for the terms included in this glossary, and have
adopted these definitions:
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AICPA 每 American Institute of Certified Public Accountants
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ASA 每 American Society of Appraisers
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CBV Institute 每 Chartered Business Valuators Institute
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RICS 每 Royal Institution of Chartered Surveyors
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TAQEEM 每 Saudi Authority for Accredited Valuers
SCOPE
This glossary has been developed as part of ongoing efforts to harmonize definitions for business
valuation and intangible asset terms.
Some of the terms in this glossary may differ slightly based on the purpose of the valuation and
jurisdiction. Furthermore, organizations such as valuation professional organizations, accounting
regulatory bodies, tax authorities and courts may have somewhat different definitions and
interpretations. Users are also encouraged to make reference to finance texts for more information
on specific terms.
In some instances, cross referenced terms have been provided to the authoritative body that defines
the specific term 每 one example of this is the term ※fair value§.
If, in the opinion of the business valuation professional, one or more of these terms needs to be used
in a manner that materially departs from the enclosed definitions, it is recommended that the term
be defined as used within that valuation engagement.
The definitions included herein are intended to be a resource for business valuation professionals,
and are not meant to be prescriptive. The use of the appropriate definition relies on the professional
judgement of the valuation professional. This glossary presumes that the valuation professional
consulting this glossary has appropriate training and competence in business valuation.
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This glossary*s aim is to include technical terms that are likely to be helpful to valuation professionals
but also to users of valuations. In determining the terms to be included in this glossary, the following
items were excluded:
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terms whose definition can be found in a common dictionary;
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generally understood finance terms (such as ※hindsight§ or ※EBITDA§) or common accounting
and audit terms (such as ※useful life§) or terms used in other disciplines;
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practice terminology or performance frameworks;
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terms specific to a particular valuation professional organization (VPO) or used within a
particular VPO*s standards;
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jurisdictional differences, including terms of local accounting or legal standards. Users of this
glossary are cautioned that if a jurisdictional definition applies, it should take precedence over
the definitions in this glossary (one example of this might be with respect to the term ※fair
value§).
Various relevant valuation and accounting standards were considered in the creation of this glossary,
including International Valuation Standards (IVS), International Financial Reporting Standards
(IFRS), United States Generally Accepted Accounting Principles (US GAAP), Uniform Standards of
Professional Appraisal Practice (USPAP), etc.
CONSIDERATIONS AND LIMITATIONS
These definitions are subject to change. This glossary is intended to be a ※living document§ and
updated regularly. These definitions are current as of the date noted at the end of the document.
The glossary uses the term ※see also§ to refer to terms that are related, but not synonymous.
Synonymous terms are cross-referenced with the word ※also known as§. Contrary terms are crossreferenced using ※contrast with§.
Departure from this glossary is not intended to provide a basis for civil liability and should not be
presumed to create evidence that any duty has been breached.
CONTRIBUTORS
This glossary of business valuation terms was prepared with input from the following technical
advisors:
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Catalina Miranda (Canada) - Chair
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Alexander Aronsohn (UK)
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Christine Sawchuk (Canada)
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Jeffrey Tarbell (USA)
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Lucas Parris (USA)
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Mark Smith (USA)
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Muath Alkhalaf (Saudi Arabia)
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Omar Mohammad Zaman (Saudi Arabia)
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Steve Choi (USA)
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The above group wishes to thank the following organizations for their review and contribution to this
document:
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Chartered Accountants Australia & New Zealand (CA ANZ) (Australia and New Zealand)
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European Association of Certified Valuators and Analysts (EACVA) (Europe)
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F谷d谷ration Fran?aise des Experts en Evaluation (FFEE) (France)
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Institute of Chartered Accountants in England and Wales (ICAEW) (England and Wales)
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Institute of Valuers and Appraisers (IVAS) (Singapore)
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International Institute of Business Valuers (iiBV)
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International Valuation Standards Council (IVSC)
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National Association of Certified Valuators and Analysts (NACVA) (United States)
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The Appraisal Foundation (TAF)
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A
Acquisition Premium 〞 in a merger or an acquisition, the difference between the purchase price
and pre-acquisition value of the target firm. See also Control Premium and Market Participant
Acquisition Premium.
Active Market 〞 a market in which transactions for the asset or liability take place with sufficient
frequency and volume to provide pricing information on an ongoing basis.
Adjusted Book Value Method 〞 a method within the Asset Approach whereby all assets and
liabilities (including off-balance sheet, intangible, and contingent) are adjusted to their market values
or other appropriate Basis of Value or Standard of Value. Also known as the Asset Accumulation
Method or Summation Method.
Adjusted Net Asset Value Method 〞 also known as Adjusted Book Value Method.
All Risks Yield 〞 the reciprocal of the Capitalization Factor, usually expressed as a
percentage. See also Capitalization Factor; Capitalization Rate.
Appraisal 〞 also known as Valuation.
Appraisal Approach 〞 also known as Valuation Approach.
Appraisal Date 〞 also known as Valuation Date; Effective Date; Measurement Date.
Appraisal Method 〞 also known as Valuation Method.
Appraisal Procedure 〞 also known as Valuation Procedure.
Appraised Value 〞 the Valuation Professional*s opinion or conclusion of value.
Arbitrage Pricing Theory 〞 a model for estimating the cost of equity capital, which incorporates
several systematic risk factors.
Asset Accumulation Method 〞 a method commonly under the Asset Approach under which the
value of the enterprise is determined to be the sum of the value of the enterprise*s individual assets
and liabilities (e.g Intangible Assets, unrecorded assets and liabilities and contingent assets and
liabilities). Also known as Adjusted Book Value Method or Summation Method.
Asset Approach 〞 a general way of determining a value indication of a business, business
ownership interest, or security using one or more methods based on a summation of the value of the
assets net of liabilities, where each of the assets and liabilities have been valued using either the
market, income, or cost approach. See also Cost Approach.
Attrition 每 the annual rate of loss, decay, or churn, expressed as a percentage, of an existing asset
such as a customer relationship, workforce or technology-related asset. The attrition rate may be
utilized in forecasting the expected future cash flows of a similar asset.
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B
Backsolve Method 〞 within the Market Approach wherein the equity value for a privately held
company is derived from a recent transaction between unrelated parties in the company*s own
instruments.
Basis of Value 〞 a statement of the fundamental measurement assumptions of a valuation. The
basis of value is also the standard or definition of value being used (e.g. Fair Market Value, Market
Value, Fair Value, Investment Value). Also known as Standard of Value.
Beta 〞 a measure of systematic risk or volatility of a security; the total return of a security correlated
to the return of a specific portfolio of assets (i.e. an index).
Blockage Discount 〞 an amount or percentage deducted from the current market price of a
publicly-traded or privately-held stock to reflect the decrease in the per share value of a block of
stock that is of a size that could not be sold in a reasonable period of time given normal trading
volume.
Book Value 〞 also known as Net Book Value.
Business 〞 also known as Business Enterprise.
Business Combination 〞 a transaction or other event in which an acquirer obtains control of one
or more businesses.
Business Enterprise 〞 a commercial, industrial, service, or investment entity (or a combination
thereof) pursuing an economic activity. Also known as Enterprise.
Business Risk 〞 the degree of uncertainty of realizing expected future returns of the business
resulting from factors other than financial leverage. See also Financial Risk.
Business Valuation 〞 the act or process of determining the value of a business, business
ownership interest, intangible asset or security.
C
Calibration 〞 the process of reconciling the unobservable inputs used in a valuation technique so
that the result of that valuation technique equals a specified value.
Capital Asset Pricing Model (CAPM) 〞 a model in which the cost of capital for any security or
portfolio of securities equals a risk-free rate plus a risk premium that is proportionate to the systematic
risk of the security or portfolio. Additional premiums may be appropriate, such as size premium,
country-risk premium and company-specific risk premium.
Capitalization 〞 a conversion into value of the economic benefits of a single period.
Capitalization Factor 〞 any multiple or divisor used to convert the expected economic benefits of
a single period into value.
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