Business Valuation Glossary Australia | IBV™

A valuation report should let you follow the reasoning from the instruction to the conclusion. This glossary explains the language you are likely to encounter, what each term means in context and the question worth asking when it appears in your report. It is an Australian owner-and-adviser reference—not a set of formulas for valuing your own business.

Read definitions alongside the report's actual subject, valuation date, basis, scope and permitted users. The same label can describe different measures in different documents. A company accountant, transaction lawyer and business valuer may use “goodwill”, “debt” or “fair value” for different purposes. The relevant definition and supporting evidence matter more than the label.

First identify the number you are reading. Enterprise value, equity value, the price for a shareholding and net sale proceeds are not interchangeable. A report should explain the bridge rather than leave you to infer it from a headline.

These explanations draw on APESB's valuation services guidance, International Valuation Standards and ATO market valuation guidance. Accounting terms refer to their applicable AASB context. Australian legislation, agreements and the engagement terms may require a specific definition. IBV™ voluntarily aligns its process and reporting with relevant APES 225 principles; this is not a claim of membership-based obligations or universal compliance with every requirement.

AASB 128

The Australian Accounting Standard covering investments in associates and joint ventures, including equity-method accounting in many circumstances. An associate is an entity over which the investor has significant influence; exemptions and the applicable reporting context must also be considered. Under the equity method, the carrying amount is adjusted for the investor’s share of relevant changes in the investee’s net assets. It is an accounting measurement, not automatically the market value of the investment or the price a buyer would pay. Ask: is this figure an accounting carrying amount or a separately assessed value? See AASB 128 — Investments in Associates and Joint Ventures.

Add-back

An adjustment adding an expense already charged in the accounts back to an earnings measure. It needs a documented reason: for example, a genuinely non-recurring expense that will not require replacement expenditure. An owner-related payment is not automatically an add-back. If the owner's work still needs doing, commercial replacement costs must be allowed for. Ask: what record supports the adjustment, and what ongoing cost replaces it?

Adjusted net assets

An asset-based technique that assesses relevant assets and liabilities on the instructed valuation basis rather than simply using accounting carrying amounts. It can require specialist evidence and recognition of items not separately recorded. Whether the analysis is market, income or cost based depends on how the individual assets and liabilities are valued; asset-based analysis is not automatically a fourth principal IVS approach. Nor does it create a guaranteed minimum value after realisation costs and obligations.

APES 225

IBV voluntarily aligns with relevant principles of this Australian professional standard for Valuation Services issued by the Accounting Professional & Ethical Standards Board. It distinguishes calculation, limited-scope valuation and valuation engagements, and addresses terms, work and reporting. Its obligations apply to relevant members; IBV's voluntary alignment with relevant principles must be distinguished from those obligations. Method count alone does not determine engagement type. The standard was issued in October 2024 and applies to engagements commencing on or after 1 January 2025; see APES 225, October 2024 — voluntary IBV alignment and APESB's valuation services page.

Assumption

A proposition adopted for the analysis, such as continued operation or the availability of specified records. An assumption should be explicit, relevant and reasonable for the instruction; calling something an assumption does not make contradictory evidence disappear. Special assumptions, where relevant, need particular care because they may posit facts different from those existing at the date. Ask: which assumptions materially drive this conclusion, and what happens if they do not hold?

Basis of value

The framework of premises and measurement concepts defining what kind of value is being assessed. Market value, investment value and accounting fair value address different questions and cannot be swapped casually. Purpose and applicable law or standards guide the choice. Record the adopted definition before comparing reports. A number produced on one basis may not answer a tax, agreement or transaction question requiring another.

Book value

An amount recorded in financial statements under the applicable accounting policies. It may reflect historical cost, depreciation, impairment or another measurement basis. Book equity is the accounting residual of assets less liabilities; it is not automatically the market value of the shares. Unrecorded economic benefits and accounting amounts that differ from current value can explain substantial differences without either figure being an arithmetic error.

Calculated Value

An estimate of value resulting from a Calculation Engagement in which the valuer and client agree on the valuation approaches, methods and procedures to be applied. It produces a Calculated Value rather than a Conclusion of Value. Under IBV policy this engagement is intended for the client's own preliminary planning and does not permit reliance by third parties, and it is not a substitute for a conclusion commissioned for a different purpose. Confirm the actual engagement terms rather than assuming the cheapest package suits a transaction or tax requirement. Compare engagements and fees.

Capitalisation rate

A rate used to convert an appropriate ongoing earnings or income measure into a value indication. Its construction must be compatible with that measure and the assumptions about risk and growth. A capitalisation rate is not automatically the discount rate applied to a forecast. Ask: what earnings definition is being capitalised, and how have risk, growth and investment needs been reflected?

Cash-free, debt-free

A convention often used to describe an operating enterprise value before specified cash and financing debt adjustments. It is not a promise that no liabilities exist or that the business can operate without cash. Normal operating working capital may already be included. The report or transaction documents must define cash, debt, debt-like items and the working-capital boundary; do not borrow those definitions from a different deal.

CGT reporter

A context-specific label for a person, entity or system reporting capital gains tax information—not an official valuation credential or a defined ATO role identified for this glossary. Its meaning must be checked in the document using it: the taxpayer, tax agent and valuation provider have different responsibilities. A valuation may support an adviser’s CGT calculation but does not itself lodge a tax return, determine concession eligibility or guarantee ATO acceptance. Ask: who reports which information, under what obligation, and who is responsible for the tax advice? See the ATO’s guidance on capital gains tax.

Comparable evidence

Information about sufficiently relevant businesses, shares or transactions used to inform an assessment. Relevance depends on date, size, earnings definitions, rights, growth, risk and deal terms. Advertised asking prices are not completed sale prices. A listed-company comparison may require careful treatment of liquidity, scale and control. Explain why evidence deserves weight and what limits its use rather than selecting only the comparisons supporting a preferred number.

Control

The ability attached to an interest to influence or direct relevant business decisions. Voting rights, agreements, share classes and practical circumstances matter; a headline percentage is not the whole analysis. A controlling-interest conclusion and a minority-interest conclusion may differ, but a control premium or minority discount is not automatic. Check the instructed basis and governing agreement before applying any adjustment.

Cost approach

A principal valuation approach considering the cost of obtaining an asset of equivalent utility, with relevant depreciation or obsolescence adjustments. Cost and value are not interchangeable: expenditure on a business does not prove buyers will recover it. The approach may inform particular assets without capturing all the earnings and transferable benefits of an operating business. IVS distinguishes the cost approach from income and market approaches.

Cost value reconciliation

A context-dependent description of a bridge between a cost amount and a value amount; it is not presented here as a formally defined AASB or IVS valuation method. Specify whether “cost” means historical purchase cost, accounting carrying amount, replacement cost or tax cost base, and identify the value basis and date. Differences may reflect depreciation, obsolescence, market changes or other supported adjustments, but expenditure alone does not establish value. A tax cost base and a market valuation answer different questions. Ask: which amounts are being reconciled, what supports each adjustment, and are any benefits counted twice? See ATO guidance on an asset’s cost base.

Debt and debt-like items

Financing borrowings and other obligations treated as debt-equivalent adjustments under the defined valuation or transaction boundary. Bank loans are familiar examples; other balances require judgement about their nature and whether already captured in operations or working capital. Accounting classification alone does not settle the bridge. Ask: has each obligation been recognised once, and is the treatment consistent with the cash flows being valued?

Discount rate

A rate used to express future economic benefits as present value. It must be compatible with the cash-flow currency, risk, timing and nominal/real and pre-/post-tax conventions. Cash flows available to the enterprise and cash flows available only to equity holders require different financing perspectives. The rate is an analytical input supported by evidence, not simply a desired investor return inserted to achieve a chosen outcome.

Discounted cash flow (DCF)

An income method discounting forecast cash flows and, where appropriate, a terminal value to the valuation date. Credible forecasts should account for the expenditure, tax and working capital required to generate those cash flows. The result is sensitive to timing, growth, investment and risk assumptions. A detailed spreadsheet can still be weak if its forecasts are unsupported. Read the valuation methods guide.

Due diligence

Investigation of a proposed transaction's financial, legal, commercial and operational facts. A valuation may inform a due-diligence process but does not replace all those investigations or audit the accounts by implication. A buyer still needs appropriate advice on contracts, liabilities, tax and transferability. The report's scope should make clear which procedures were undertaken and which matters remain for other advisers.

EBIT

Earnings before interest and tax. It is a profit measure, not automatically operating cash flow or money distributable to shareholders. State whether it is reported or adjusted, the period covered and the treatment of non-operating items and leases. An EBIT multiple cannot simply be applied to EBITDA: depreciation and amortisation change the denominator, and the supporting multiple must match it.

EBITDA

Earnings before interest, tax, depreciation and amortisation. It is a derived analytical measure requiring a clear reconciliation, not a universal definition of cash generation. Capital expenditure, working-capital movements, financing and tax still matter. Lease accounting can alter its presentation. Use the same conventions for the subject and comparisons, and distinguish reported EBITDA from normalised EBITDA. See how to calculate EBITDA.

Enterprise value

A measure of the operating business before allocating value between financing providers. Always identify included assets, operating liabilities, working capital and cash/debt conventions. The same words can describe differently constructed figures. An enterprise value is not automatically the price for the company's shares, the value of every asset held by related entities or the owner's net proceeds after a sale.

Equity value

Value attributable to the relevant ownership equity after reconciling the operating valuation with defined cash, debt and non-operating adjustments. The specific shares or units may require further analysis of rights and restrictions. A whole-company equity conclusion does not automatically imply a minority parcel is worth its exact percentage. Read enterprise value versus equity value for a fuller explanation.

Evidence Pack

IBV's name for the supporting material accompanying the valuation report. It helps the reader trace financial analysis, information sources and relevant risk or benchmarking material. Contents depend on the agreed engagement, available evidence and scope; not every possible appendix is included in every instruction. It is not an audit opinion or an independent promise that each assumption will be realised. See the Business Valuation Report.

Fair value

A term whose governing context must be identified. Accounting fair value under AASB 13 concerns an exit price in an orderly transaction between market participants under that standard's framework. A contractual use of “fair value” may require legal interpretation and need not mean the same thing. Do not assume accounting fair value, tax market value and a shareholder-agreement figure are interchangeable. Refer to AASB 13.

Free cash flow

Cash flow after the expenditure and operating investment needed to generate it, defined for the particular analysis. Enterprise cash flow and equity cash flow differ in their treatment of financing. State treatment of tax, capital expenditure, working capital and leases before selecting a discount rate. EBITDA is not automatically free cash flow: replacing equipment and funding growing debtors can consume substantial cash even when reported earnings are positive.

Full Conclusion of Value

IBV's service designation for its more extensive Valuation Engagement offering, with scope, fee and timing confirmed in writing. Under APES 225 — the standard IBV voluntarily aligns with — a Valuation Engagement allows the valuer to select the approaches, methods and procedures considered appropriate to the circumstances, without material scope restrictions of the kind defining a Limited Scope Valuation Engagement; the IBV label is a service designation, not a formal engagement category under that standard. It is selected where the purpose, reliance and evidence requirements call for that work—not automatically because turnover is large. Neither the label nor the breadth of procedures guarantees recipient acceptance. IBV does not accept expert-witness or court-appointed engagements. Compare actual inclusions on the central fees page.

Going concern

A premise that the business continues operating rather than being broken up for disposal. It requires consideration of viability, funding and relevant circumstances; the label should not mask material trading difficulties. A going-concern valuation and liquidation analysis may include different benefits, costs and time assumptions. Accounting going-concern assessments and the valuation premise are related questions but do not automatically produce the same conclusion.

Goodwill

Business-connected advantages supporting customer attraction and continuing economic benefits. For Australian income-tax purposes, legal goodwill must be distinguished from accounting goodwill: ATO TR 1999/16 treats the legal goodwill of a business as a single indivisible asset. Accounting goodwill under AASB 3 is an acquisition-method residual. Brands, location and owner relationships may be sources of goodwill, not automatically separate goodwill assets. Adding goodwill to an earnings value can double count the same benefits.

Income approach

A principal valuation approach translating expected economic benefits into a present value indication. Capitalisation of maintainable earnings and DCF are income methods, not separate overarching approaches. The income stream, growth and risk assumptions must fit together. A method may be unsuitable if the supporting earnings or forecast evidence is weak; a familiar formula is not sufficient reason to use it.

Intangible asset

An asset without physical substance, such as certain contractual rights, software or intellectual property. Identifiability, legal ownership, transferability and economic benefit require investigation; an unregistered idea is not automatically a separately valuable asset. Accounting recognition under AASB 3 or AASB 138 is a distinct exercise. Be clear whether the benefit is separately valued or already captured in an operating-business conclusion.

Investment value

Value to a particular owner or prospective investor given that party's individual circumstances and objectives. It may reflect benefits unavailable to typical market participants, such as a buyer-specific distribution network. It is not automatically market value. A strategic buyer's potential synergies can explain a different indication, but their existence, achievable costs and allocation in negotiations need evidence.

Lease treatment

The handling of premises or equipment leases in earnings, cash flows and the value bridge. AASB 16 can replace certain rent expenses with depreciation and interest for lessees, changing reported EBITDA without an equivalent improvement in economics. Compare subject and benchmark on a compatible basis and avoid deducting lease obligations inconsistently with the cash flows. Check the applicable reporting framework and exemptions in AASB 16.

Limited Scope Conclusion of Value

A valuation engagement resulting in a Conclusion of Value where the valuer's scope of work is materially restricted or limited. Restrictions may be agreed at commencement or arise during the engagement, and their nature and potential effect on the conclusion must be appropriately considered and disclosed. Limited Scope is not inherently a lower-quality service, but restrictions may affect the suitability and outcome of the valuation. Disclosure alone cannot cure an unsupported conclusion. Under IBV policy, tax-purpose work requires at least Limited Scope, while other purposes require assessment of instructions and permitted reliance.

Liquidity and marketability

Related but distinct considerations about converting an interest into money and the practical ability to sell it. Private shares may face transfer restrictions, a small buyer pool or uncertain exit timing. Any marketability adjustment must be supported for the actual interest and valuation basis, not taken from a generic percentage table. Avoid counting the same risk again through earnings, the discount rate and an unexplained separate deduction.

Maintainable earnings

An assessed ongoing earnings level appropriate to the valuation date and method, after supported normalisation and consideration of trading circumstances. It is not necessarily the latest year or a mechanical average. Review trends, capacity, contracts and current trading as well as historical figures. Ask: why is this period representative, and which evidence supports the income continuing after ownership changes?

Market approach

A principal valuation approach using relevant market observations, such as transactions or comparable-company evidence. The quality of comparisons and adjustments matters more than the volume of examples. Earnings, ownership rights, included assets, transaction timing and consideration must be understood. A revenue multiple may be informative in some contexts but does not excuse ignoring margins, cost structures or transfer restrictions.

Market value

A valuation basis framed around a hypothetical market-participant exchange at the specified date under its adopted definition and conditions. It is neither the owner's hoped-for price nor necessarily a particular buyer's strategic value. For tax work, the relevant provision and subject must be confirmed: generic terminology cannot override the applicable law. The ATO's market valuation guidance emphasises objective, supportable evidence.

Multiple

A ratio linking a value or price to a defined earnings, revenue or other measure. “Four times profit” is incomplete without the denominator, period, adjustment, lease basis and enterprise/equity boundary. A multiple from another business is evidence to assess, not a ready-made answer. A capitalisation multiple is the reciprocal of a capitalisation rate only with aligned measure and assumptions; see the fictional example below.

Non-operating assets

Assets outside the operating economic benefits being valued, such as a genuinely surplus investment. Whether property, cash or another asset is non-operating depends on the business and method, not its name. If its income has been excluded from maintainable earnings, its value may need separate reconciliation. If already included in the cash flows or value indication, adding it again risks double counting.

Normalised earnings

Reported earnings adjusted to a defined commercially sustainable basis. Adjustments can decrease as well as increase profit: underpaid owner labour or below-market related-party rent may require additional costs. Distinguish expenses from drawings or dividends, which may not have reduced reported profit in the first place. Document amount, ledger treatment, rationale and supporting evidence. Read normalised earnings and add-backs.

Permitted reliance

The use of the report by the users and for the purpose authorised under the engagement terms. Receiving a copy does not automatically make a person an authorised user, and a report commissioned for one decision does not automatically fit another. Tell the valuer about lenders, advisers or counterparties before scope is agreed. IBV's Calculated Value is for own planning, not reliance by others.

Premise of value

The assumed manner in which the business or assets are used or realised, such as continued operation or disposal. It is different from the basis of value. State both: market value measured as a going concern asks a different question from a forced disposal of individual assets. Neither a premise nor a basis should be selected merely to manufacture a preferred number.

RAVDA

Risk and Value Driver Assessment: an IBV-specific scoring tool used to organise relevant business risk and value-driver information. It is not a universal valuation standard or a market multiple table. Its inputs, evidence and role in the agreed assessment should be explained. A score informs the analysis; it does not remove the need for judgement or guarantee a particular business value.

Reduced Disclosure Regime (RDR)

The former Australian Tier 2 reporting framework that reduced disclosures while generally retaining Tier 1 recognition and measurement requirements. It should not be confused with permission to use different valuation inputs or omit necessary valuation evidence. For annual periods beginning on or after 1 July 2021, AASB 1060 introduced Tier 2 Simplified Disclosures in place of RDR; older financial statements can still refer to RDR. Check the reporting period and applicable framework before comparing disclosure detail. Fewer notes do not, by themselves, establish poorer accounting or a lower business value. Ask: which reporting framework applies, and what additional records does the valuation need? See AASB 1060 implementation guidance.

Retrospective valuation

A valuation at an earlier effective date. The evidence must address what was known or reasonably foreseeable then, with later developments treated transparently rather than automatically imported through hindsight. A later sale can be relevant evidence but is not automatically the earlier-date value. The report date remains distinct. See retrospective valuation evidence.

Sensitivity analysis

A test showing how selected input changes affect the indication while other specified assumptions remain fixed. It can identify which evidence gaps deserve attention. It is not automatically a probability distribution, confidence interval or supported valuation range. Changing an earnings assumption and a multiple together also needs care because risk, growth and margins can interact.

Shareholder loan

A financing or other loan balance between the company and a shareholder; identify which party owes the money. A company loan payable may reduce company equity while the shareholder holds a separate creditor claim. Repayment or assignment of that claim is not automatically consideration for the shares. Check terms and recoverability. An amount owed by a shareholder to the company raises different treatment and potential tax issues requiring adviser review.

Terminal value

The value representing economic benefits after a DCF's explicit forecast period, commonly estimated using a continuing-growth or exit-based method. It must reflect sustainable economics, investment needs and compatible risk assumptions. It may account for much of the DCF result. Ask: how much comes from terminal value, and what evidence supports the assumed growth or exit conditions?

Transaction price

The consideration agreed for the particular transaction. It can differ from a valuation because of buyer-specific benefits, negotiation, financing and deal conditions. Separate completion cash, earn-outs, vendor finance, employment payments and retained assets before comparing it with a report. A conditional future payment is not automatically worth its face amount today; equity value is not the same as net after-tax proceeds.

Valuation date

The effective date at which value is assessed, not necessarily the date the report is signed or the transaction settles. It determines the relevant circumstances and evidence. Confirm adviser or statutory requirements before choosing it. Information obtained later may illuminate the earlier position, but later events should not silently be treated as known at that date.

WANEBIT

Weighted Average Normalised Earnings Before Interest and Tax, a term used in IBV reporting for an assessed EBIT measure combining specified normalised periods and weights. The weighting must be explained and supported; it is not a rule requiring every valuation to use the same years or percentages. WANEBIT remains an earnings input, not enterprise value, equity value or cash available for distribution.

Working capital

Defined short-term operating assets less operating liabilities used to support trading. Depending on the instruction, it can include stock, trade debtors and trade creditors, with exclusions for cash or financing items. Normal working capital may already be represented in enterprise value. A completion shortfall adjustment must use the agreed target, definitions and recoverable balances—not subtract every current liability again. Read working capital in a business sale.

All figures below are fictional Australian-dollar illustrations, not client information, industry benchmarks or a valuation of your business. The arithmetic explains definitions; the inputs are assumed, not independently established.

Enterprise value is not equity value

Assume a whole operating company has an enterprise indication of $1,200,000 on a cash-free, debt-free basis including normal working capital. Surplus cash of $80,000 is excluded from that indication. External financing debt is $250,000 and the company owes its shareholder a further $50,000 loan. All these balances are assumed fully recoverable or payable at face value; there are no other assets, debt-like items or working-capital adjustments.

The separate $50,000 loan creditor interest is not part of the $980,000 share equity. If repayment or assignment is negotiated, address it separately with the actual terms and recoverability. This illustration does not calculate a minority parcel or a seller's receipts after tax, costs and payment conditions. Stock and trade balances included in normal working capital are not added again.

A rate and a multiple can express the same arithmetic

For this separate, simplified no-growth capitalisation illustration only, assume an appropriate ongoing annual income measure of $240,000 and a compatible capitalisation rate of 20%. Dividing $240,000 by 0.20 gives $1,200,000. The reciprocal rate gives a 5.0× multiple, and $240,000 × 5.0 gives the same $1,200,000.

This does not establish a suitable rate, earnings basis or market multiple for any business. The 20% is a capitalisation rate here, not a claim that every 20% discount rate implies 5.0× EBITDA. In a simple constant-growth cash-flow model, a capitalisation factor may reflect the discount rate less sustainable growth, but that relationship depends on matching cash-flow and timing assumptions; it must not be transplanted into an earnings multiple without analysis.

Do not mix the numerator and denominator. An EBIT multiple, an EBITDA multiple and an equity earnings multiple measure different things. Lease, tax, financing and working-capital conventions must agree before rates or multiples can be compared.

When reading your report, write down the subject, date, basis, premise and permitted users first. Then trace the earnings definition and its adjustments, the method and risk assumptions, and the reconciliation to the interest being valued. Flag any label whose definition is unclear rather than filling the gap with a rule of thumb.

Use the report-reading guide for a fuller review checklist and the methods guide for method selection. Confirm the actual engagement and current Fixed Professional Fee before commissioning work. This glossary is general information, not a business valuation or legal, tax or financial advice. Specific agreements, legislation and recipient requirements need appropriate professional review.

Frequently asked questions