Valuation
ValuationIllustration
Operating business value + non-operating assets = enterprise value
Enterprise Value − Debt Value = Equity Value
What are non-operating assets?
These are assets the company holds that are not used in the business being valued, or that exceed the level needed to sustain operations. Examples include unused golf club memberships, vehicles such as Ferraris held as a hobby, idle real estate, and cash and deposits above operating requirements.
We assess actual use and necessity rather than relying on an asset's name. Business vehicles and necessary working capital are not automatically treated as non-operating assets.
Net cash = Cash, deposits, and equivalents − Interest-bearing debt
In this diagram, it is the difference between cash, deposits, and equivalents included in “non-operating assets” at the upper left and interest-bearing debt included in “value attributable to creditors” at the upper right. Non-operating assets also include real estate and other items, so net cash does not refer to their full amount.
The scope of cash and deposits used in the valuation, and whether cash required for operations is excluded, are checked against the valuation assumptions.
This is a conceptual diagram; the areas do not represent the valuation of a particular company. Here, enterprise value is presented as operating business value plus the value of non-operating assets. Kenji Yanagisawa, “10 Checkpoints for Successful M&A”, adapted from its diagram.
Just as a third-party appraisal may be needed for real estate, there are situations in which the value of a company or its shares needs to be assessed independently of the transaction parties.
Yanagisawa Research Institute Co., Ltd. values businesses, enterprises, and equity for purposes such as share transfers, intragroup reorganizations, and fundraising. Our report explains not only the valuation but also its assumptions, calculation basis, and reasons for choosing the valuation methods.
First, establish the purpose of the valuation
Even for the same company, the appropriate method and issues depend on the valuation purpose, transaction parties, shareholder position, and valuation date. Do you need a reference value for M&A, or a tax review of a related-party transaction price? We clarify the purpose before starting the calculations.
I want to substantiate a transaction price
For share transfers between an owner and a company, intragroup transactions, and similar matters, we review the relationships and tax issues and assess whether the price is reasonable.
I need a valuation for a reorganization
For business transfers, intragroup reorganizations, and calculation of merger or share exchange ratios, we identify and value the relevant business or shares.
I want to prepare for M&A or fundraising
We calculate value using business plans and information on comparable companies. We distinguish an indicative value for negotiations from the transaction price ultimately agreed.
I need an inheritance tax valuation
We value unlisted shares under the Basic Circular on Property Valuation, reviewing the company's size, asset composition, shareholder circumstances, and other relevant factors.
We Select Valuation Methods to Fit the Purpose
Business valuation is based on the following three approaches. Depending on the purpose and the target company's circumstances, we identify applicable methods and explain why they are chosen.
01 Income approach
This approach focuses on future earnings and cash flows. The DCF method discounts future cash flows from the business plan to present value. Assumptions about plan feasibility, discount rates, and terminal value affect the outcome.
02 Net Asset Approach
This method focuses on the difference between assets and liabilities. The adjusted net asset method considers fair market values and necessary adjustments rather than simply using book values. We also consider how far it can reflect future earnings capacity.
03 Market Approach (Comparative Method)
This method uses information on comparable listed companies or transactions. When applying multiples of EBITDA or other measures, we examine the comparators' businesses, size, growth prospects, and financial condition to assess whether the comparison is appropriate.
We also provide dividend capitalization and tax valuations
In addition to the 3 core approaches, we consider minority shareholder positions and tax treatment, including dividend capitalization and valuations under the Basic Guidelines for Property Valuation. We address a wide range of purposes, from M&A to related-party transactions, inheritance, and gifts.
Dividend Capitalization Method
This method values shares based on the dividends received by shareholders. Its suitability depends on shareholder control, actual dividends, and the valuation purpose. In broad terms, it forms part of the income approach.
Methods under the Basic Property Valuation Guidelines
These methods value unlisted shares for inheritance and gift tax. Depending on company size, asset composition, shareholder circumstances, and other factors, we consider the comparable industry method, net asset value method, dividend capitalization method, and others. If used as a reference for transactions involving other taxes, the relevant tax treatment and necessary adjustments must be reviewed separately.
Dividend capitalization is broadly included in the income approach. The Basic Circular on Property Valuation also incorporates net asset, comparative, and dividend capitalization concepts, but we present them separately here as options for different valuation purposes.
Documenting why the method was chosen
Different valuation methods can produce substantially different values. An important role of an independent valuation is to select a reasonable method for the transaction and purpose, rather than choosing a method to reach a desired number.
For assignments requiring tax analysis, we work with our network member firm, Yanagisawa International Tax & Accounting Office. Even a third-party report does not bind the tax authorities. We emphasize being able to explain the underlying facts and the basis for the valuation method.
A Report That Explains the Basis of the Valuation
- Summary of Valuation Results — Sets out the subject of the valuation and the calculated results.
- Assumptions — We state the purpose, valuation date, source materials, shareholder positions, and transaction relationships.
- Selection of Valuation Methods — Explains the methods considered and why each was adopted or rejected.
- Valuation calculations and supporting materials — We present the calculation process and supporting evidence.
At the start of the engagement, we confirm the intended use and required scope, then review documents, perform the valuation, and prepare the report. On delivery, we explain the results and assumptions. For simplified valuations, the scope of deliverables is agreed individually in advance.
Our experience
Indicative Fees
| Initial consultation | Free |
|---|---|
| Valuation and Valuation Report DCF, Adjusted Net Asset, Comparative Methods, and Others | From JPY 2,000,000 (From JPY 2,200,000 including tax) |
| Inheritance Tax Valuation Valuation of unlisted shares under the Basic Property Valuation Guidelines | From JPY 300,000 (From JPY 330,000 including tax) |
| Simplified startup valuation | From JPY 100,000 (From JPY 110,000 including tax) |
Prices are shown both excluding and including tax. Simplified startup valuations support entrepreneurs through a limited purpose, scope, and deliverable. We provide a quotation before starting after reviewing the company's situation, valuation purpose, methods, and volume of materials.
Tell us about your business valuation needs.
Start with an Email Inquiry
Tell us the purpose of the valuation, the company involved, and your preferred timing. We will explain the required materials, scope, and fees.
Submitting an inquiry alone does not incur a fee.