Valuation method in Japan

Approach   Method Explanation Characteristics
         
Income approach   DCF, APV, ECF A valuation method based on its future cash flows The most theoretical method and widely used in practice. Required highly technical analysis for estimating cash flows and risks
A valuation approach based on  estimated future profits and cash flows of a company        
  Direct capitalization A valuation method based on its discounted flat future cash flows One of simplified DCF Includes uncertainly for estimating future profit and risks
       
  Dividend discount method A valuation method based on the sum of future dividend payments discounted by the cost of equity A valuation method used to evaluate minority interest best adapted for the company keeps sustainable distributions
       
  Dividend discount method
(Inheritance tax)
A valuation method based on past pay-out record of a company with no previous market transaction, based on certain formulae announced in the tax authority A method used for the minority shareholders (shareholders except family shareholders)
         
Approach   Method Explanation Characteristics
         
Market Approach   Market price method The valuation method based on market price of a listed company Only available for listed companies
A comparative valuation approach based on share price for a specific period of time, or comparison of peer listed companies and transactions in the stock market        
  Multiple method
(Comparative method)
The valuation method based on multiplier of market cap or enterprise value and financial results of listed peer companies Required certain size, due to comparative analysis of listed peer companies
       
  Comparable transaction multiple method A valuation method based on multiplier of similar transactions and financial results Available when certain amount of independent third parties transactions are observable
       
  Comparative peer industry method
(Inheritance tax)
A valuation method for non trading stocks based on results of listed companies in the same sector categorized by National Tax Agency, which is the Inheritance tax valuation based on the general notification of property valuation Used in Inheritance tax valuation only
         
Approach   Method Explanation Characteristics
         
Cost approach   Book value method A valuation method based on book value on the balance sheet of a company Used in the case of no large buit-in profits and losses
A valuation method focused on book value of a company


       
  Adjusted book value method A valuation method with adjustment in important accounting items reflect to assets and liabilities In practice, the method is non theoretical due to focus on static value in considering its going concern although the method is used as a bench mark for transaction price of shares.
       
  Market value method A valuation method based on market value of assets and liabilities (also referred as liquidation value method in case assets and liabilities are evaluated at liquidation value) Only used the case for liquidation of a company
       
  Book value method
(Inheritance tax)
A valuation method for non trading stocks based on book value adjusted on taxable book value, which is the Inheritance tax valuation based on the general notification of property valuation Available in Inheritance tax valuation only