Guide to Business Valuation in Singapore

This article will provide a framework for business valuation in Singapore, and explain how businesses are valued.

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Singapore’s dynamic and competitive business environment is constantly evolving, and so are the ways companies are valued. Business valuation is the process of assessing the worth of a company, as determined by present and future potential. Valuation is a complex process that requires a thorough understanding of the business, market, and industry in which the company operates. Every company has its own unique objectives, strategy and goals. Business valuation is a critical component of the decision-making processes that are followed to achieve these objectives. This article will provide a framework for business valuation in Singapore, and explain how businesses are valued.

Business valuation in Singapore

In general, the process and purpose of business valuation in Singapore are similar to those of other countries. Valuation models have evolved to align with business strategies and economic activities, however, the core principles remain the same. Although, with advancements in technology and tools, there are various business valuation calculators available to help automate and streamline the valuation process.

Singapore business hub

Singapore is well-positioned as a business hub for Southeast Asia. Singapore is a developed financial center with well-established regulatory structures and securities services, making it an attractive place to conduct business. Singapore is home to large regional and multinational corporations. However, due to the pandemic, there has been an economic slowdown in Singapore.

While businesses in Singapore are expected to rebound in 2022 as a result of an influx of post-pandemic activity. Cross-border transactions, like the recently announced Pacific Alliance-Singapore Free Trade Agreement (PASFTA), will also contribute to the anticipated economic recovery. As a result, the economic recovery and the establishment of trade agreements like the PASFTA will drive business in Singapore domestically and globally in the near future. Overall, it shows that Singapore is poised for another prosperous business year across a number of markets.

Why does an entrepreneur prefer Singapore for business?

Well, Singapore being a business epicenter in the Asia Pacific region makes it a preferred destination for entrepreneurs. Its efficient competitive workforce, well-defined rules, strong international relations, pro-business environment, impressive infrastructure support, tax incentives and healthy corporate regulatory framework makes it a top choice for business startups. What’s more? Why would entrepreneurs not prefer Singapore? Here are a few more reasons:

The presence of strong legal and regulatory frameworks is a key aspect that attracts entrepreneurs to Singapore.
Many leading international banks, law firms and other financial services companies have established offices in Singapore.
The presence of top-notch universities and research institutions makes it a well-educated workforce.
With comprehensive intellectual property protection laws, entrepreneurs can freely strategize businesses in an environment that is conducive to creativity.
Singapore is well-connected with the rest of the world through a number of global air and sea ports which facilitates the flow of goods, services, and expertise.

What is a business valuation?

Business valuation is the process of assessing the worth or value of a business. This process is carried out based on financial projections, past and future market assessments, analyses of the company’s operations and other relevant data. Incorporating both quantitative and qualitative data, the process helps in arriving at a fair and accurate valuation. It is comparative and objective and hence, it provides insight into the business from a financial perspective. Thus, a business valuation is an important aspect of any business.

Purpose of business valuation in Singapore

Similar to any other country, the purpose of business valuation in Singapore remains somewhat the same. Following are some of the most common uses of business valuation:

Corporate restructuring – A business valuation report can be used to reorganize or reconstruct a company. During the process of corporate restructuring, companies often change their organizational structure. With a thorough understanding of their company’s financial and operational health, companies can decide which route is ideal for them.
Merger and acquisition – During mergers and acquisitions, business valuations are often required as a part of the due diligence process. An important aspect of mergers and acquisitions is to ensure that a transaction is beneficial to all sides, and thus, businesses are required to conduct a thorough valuation of their firms.
Financial reporting – In Singapore, as per Financial Reporting Standards (FRS) businesses are required to file an annual report which includes their financial statements to Accounting and Corporate Regulatory Authority (ACRA). As a part of the annual financial statement, a business valuation report must be included and submitted to ACRA.
Taxation – For the purpose of calculating taxes, businesses must rely on a comprehensive business valuation report. Based on the valuation of the business, taxes are calculated and paid on a regular basis. Therefore, a business valuation report must be prepared and submitted to appropriate government bodies for the requisite taxes to be paid.
Funding – Business valuation reports are also required for the purpose of obtaining financing. In case a business requires capital and hence, seeks funding from external sources, a valuation report must be attached to its financial documents. Potential investors often rely on valuation reports to help them arrive at their decision.

How to determine a business valuation in Singapore?

Business valuation requires complete analysis including mathematical calculations, extensive research, estimations, and many more. So how do you start? Well, the business valuation method in Singapore typically works on the same principle, no matter what approach is used. There are several methods of business valuation, and the approach you choose to use depends on the questions you have and the research you plan to carry out. Below mentioned are the business valuation methods in Singapore.

Methods of business valuation

Following are the top 3 methods of business valuation in Singapore:

Market approach – In the market approach, the role of business valuation is to compare the value of one enterprise with another enterprise. The peers of that business are selected based on industry, size, market capitalization, location and other factors. The price paid for the other similar companies and the comparable transactions is found out and compared with the subject company. Based on these comparisons, you can determine a value for your firm. As a result, the market approach is useful when the comparables are available and a similar transaction has taken place previously.
Income approach – As the name suggests, the income approach uses the projected future cash flow of the company for the next five years to arrive at its value. The income approach works on the principle of either Capitalization of the Cash Flow Method or the Discounted Cash Flow Method. All the annual cash flows are projected and then capitalized at the appropriate discount rate to the present value. Therefore, the projected period of the firm and the terminal value (TV) are used as the basis to calculate the value of the firm. Terminal value is basically the present value of all forecasted cash flows.
Asset approach – The asset approach of business valuation is based on the net asset value (NAV) of the firm. Net assets are the difference between the assets of the firm and its liabilities. All the assets including tangible and intangible assets of the company such as machinery, equipment, furniture, goodwill, and trademark are calculated while liabilities are the debts that the company owes to its lenders or creditors. The overall business value is the difference between the assets and liabilities of a company. However, this approach works in most cases where it is relatively easy to calculate the assets and liabilities.

Business valuation multiples and discounts in Singapore

Now that we have a basic understanding of business valuation and its methods, it’s time to take a quick look at some of the commonly-used multiples and discounts in Singapore. Here are the 5 most commonly used multiples/discounts in a business valuation:

Revenue multiple – One of the most common multiples often used in business valuations is the revenue multiple. A revenue multiple is a measure of valuation in relation to the firm’s revenues. The revenue multiple for fast-growing corporations and high-growth technology companies is roughly 3 times and for standard companies, it is around 2 times.
EBITDA multiple – The EBITDA or Earnings Before Interest, Taxes, Depreciation, and Amortization is one of the most common metrics used to determine a business’s profitability and is used as a multiples and valuation tool. While the default EBITDA multiple of 10 is considered healthy. Typically it ranges between 6 and 15 times, and hence, it serves as a stand-in for free cash flows.
Price to earnings multiple – P/E or Price to Earnings multiple is a valuation metric which reflects the amount an investor is willing to pay for every dollar of earnings. A high P/E ratio means that investors consider it a high-growth company. The multiple usually ranges from 12 times to 30 times, while according to the current average market, the P/E multiple is between 20 to 25 times, where the default is 20 times.
Dividend yield – Dividend yield is an indicator of the company that determines the relation between the dividend payout and share price. Companies having a yield of about 2% or more than or equivalent to the market yield are best suited for dividend yield analysis, while around 4% is the typical market dividend yield. As such, dividend yield can be used as a form of valuation, however, it may be less effective than other metrics.
Discounted cash flow – The discounted cash flow model is one of the most commonly used valuation models for businesses and is used for valuing a company based on its future cash flows for the next 5 years. Accordingly, these cash flows are discounted to arrive at the present value by taking into account the discount rate (cost of capital) such as the interest rate. Overall, it is based on the forecast period of 5 years along with the terminal value (TV), which is the present value of all projected cash flows.

Who does business valuations in Singapore?

The business valuation process requires expert knowledge and experience. So who do you trust to perform such a task? There are various people who can help you out:

Business valuer – The business valuer is typically the one working with a valuation firm or an accounting entity. These valuers are professionals that work on a daily basis with the business and have an in-depth knowledge of valuations. M&A, purchase price allocation, and goodwill impairment testing are a few of the business valuation activities that a valuation firm can handle.
Accountants – Accountants can help you with the business valuation process or carry out a formal valuation of your firm. They basically work for financial reporting, management, regulators and investors. However, they might work only for small companies due to the nature of the work. The activities they perform are limited to purchase price allocation and goodwill impairment testing.
Corporate and Investment Bankers – For transactional deals, Corporate and Investment Bankers are the ones carrying out business valuations. They make use of their experience and vast resources to assist in valuations and advise their clients on the matter. Generally, they work on the basis of assets and liabilities in order to assess the value of the company.
External auditors – External auditors are essentially responsible for auditing financial statements for the purpose of financial reporting. With this, they can ascertain the value of the company by looking at its assets and liabilities. Although, they may be suitable only for small companies.
Fund managers and investment analysts – Fund managers are the ones responsible for managing money for other entities/individuals/companies. Their job is to carry out research and make investments with the intention of generating profits in the future. Fund managers and investment analysts can help with the business valuation process by comparing the performance of the firm with similar firms.
Legal Professionals – Legal professionals can play a significant role in the business valuation process by advising their clients on the legal aspects of the case. In commercial and civil issues requiring valuation and damage assessments, it is the lawyers and judges who rely on business valuers as expert witnesses. As such, they are an essential part of the business valuation process.
Regulators – Regulators are responsible for ensuring that entities adhere to the rules and regulations regarding the business valuation process. They are also responsible for making sure that the same standards are followed across different organizations. Hence, they handle various matters related to business valuation in order to build confidence in the public.
Board members – Board members can play a significant role in the business valuation process. They are responsible for providing the necessary details and background information when considering a business valuation process. It is the board members that have the overall knowledge about the company, its assets, liabilities and other factors that are considered in the business valuation process.

Business valuation services in Singapore

Probably the most common question asked by business owners in Singapore is, “why do businesses need valuation from experts?” Before moving forward, let us tell you that business valuation services are basically provided by professionals and third parties and thus, there are various business valuation services in Singapore.

Why do businesses need valuation from experts?

Singapore is a highly competitive country with a well-educated workforce, a dynamic economy and a growing population. These dynamic changes in the business environment present new challenges for companies, as does the need to ensure that values are properly estimated to guide business decisions. As a result, having an expert to rely on for business valuation services can assure a company of a more accurate and reliable value that can be used on important financial and legal processes.

Why choose Eqvista for business valuation in Singapore?

In this era of a fast-paced business environment and evolving technologies, it is important for today’s businesses to make timely decisions based on accurate information and guidance. At Eqvista, we provide our clients with professional and accurate business valuation services in Singapore. The cost-effective and accurate business valuations made by our experienced and professional business valuation experts can provide companies with reliable and credible information that is essential in decision-making.

Get a business valuation for your Singapore business!

Are you looking for a business valuation company in Singapore? Confused about which business valuation company to trust? Then, you are at the right place! We at Eqvista have been providing our clients with business valuation services for years and have continued to ensure that our business valuation services are accurate and fair. Our softwares and tools are designed to provide you with the most precise and accurate value for your business. Visit Eqvista and sign up for your business valuation.

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