Valuation Approach vs. Valuation Method: What the Words Actually Mean

Confirmed directly against the current text of ICAI Valuation Standard 103, Valuation Approaches and Methods: "This Standard provides guidance for following three main valuation approaches: (a) Market approach; (b) Income approach; and (c) Cost approach." Each is defined narrowly.

• Market approach: "uses prices and other relevant information generated by market transactions involving identical or comparable (i.e., similar) assets, liabilities or a group of assets and liabilities, such as a business."
• Income approach: "converts maintainable or future amounts (e.g., cash flows or income and expenses) to a single current (i.e., discounted or capitalised) amount."
• Cost approach: "reflects the amount that would be required currently to replace the service capacity of an asset (often referred to as current replacement cost)."

An approach names the economic idea the value is derived from: an actual market price, a stream of future income, or the cost to recreate the thing. Nothing in an approach, by itself, tells a valuer what to calculate.

The Standard draws the line explicitly: "A valuer can make use of one or more of the processes or methods available for each approach." The ten are spread unevenly.

• Market: Market Price Method, the traded price of the asset itself averaged over a reasonable period where it trades in an active market; Comparable Companies Multiple (CCM), from the multiples of comparable listed companies; and Comparable Transaction Multiple (CTM), from multiples paid in actual comparable transactions.
• Income: Discounted Cash Flow (DCF), discounting expected cash flows plus a terminal value back to the present; Relief from Royalty (RFR); Multi-Period Excess Earnings (MEEM); With and Without (WWM); and Option Pricing Models, with Black-Scholes-Merton and the binomial models named specifically.
• Cost: Replacement Cost Method, the cost of recreating an asset of comparable utility, and Reproduction Cost Method, the cost of recreating an exact replica. Both adjusted for obsolescence.

Four of the ten are not general-purpose tools, and the Standard says so: "MEEM, Relief from Royalty method, With and Without method are used only for valuation of intangible assets and Option Pricing Models are used in case of valuation of options." The remaining six — market price, the two multiple methods, DCF, and the two cost methods — carry the ordinary work.

A Discount for Lack of Marketability, a control premium, and a Discount for Lack of Control are not an eleventh method. The Standard places them as a deliberate third step, applied on top of a method's output: "A valuer shall evaluate and make adjustments for differences between the asset to be valued and market comparables/comparable transactions. The most common adjustment under CCM method and CTM method pertain to 'Discounts' and 'Control Premium'."

A method answers what the asset is worth on the terms the method assumes. An adjustment answers a second question: whether the interest actually being valued has those terms. That is the mechanic underneath Control Premium: Explicit Duty Under IBC, Implicit Duty Everywhere Else, and ICAI's own glossary defines the term directly, tracking IVS's Market Participant Acquisition Premium closely: "Control Premium is an amount that a buyer is willing to pay over the current market price of a publicly-traded company to acquire a controlling interest in an asset. It is opposite of discount for lack of control to be applied in case of valuation of a non-controlling/minority interest."

ICAI VS 103 carves itself out wherever a statute already prescribes the answer: "This Standard does not apply in cases where a valuer is required to adopt valuation bases that are prescribed by a statute or regulation. In such cases, the prescribed base shall apply and the valuer shall adopt specific methods or formulae as have been laid down under the statute or regulation."

Rule 11UA, covered in Angel Tax Is Abolished. Rule 11UA Isn't, is exactly that carve-out in practice. Its closed list — net asset value and DCF, plus five further named methods for non-residents — never asks whether a valuer picked the right approach. It names its own methods and stops. Which is why Berkus, Scorecard, and Risk Factor Summation fail two tests at once, for one underlying reason: neither framework has room for a heuristic that does not discount a cash flow, derive from an actual transaction, or price a replacement cost.

The convention traced in Merger Valuations: Conditional Under Company Law, Mandatory Under SEBI to Miheer H. Mafatlal v. Mafatlal Industries Ltd. combines "the yield or income method, the asset or net-asset-value method, and the market value method." It is tempting to read that as one method drawn cleanly from each of ICAI's three approaches.

Two of the three land. Yield maps onto the Income approach and market value onto the Market approach. But no method by the name of net asset value appears anywhere in ICAI VS 103's Cost Approach, which names only Replacement Cost and Reproduction Cost. NAV sits in the same conceptual family without being one of the two. A nearly thirty-year-old judicial convention and a 2018 professional standard were never drafted to reconcile term for term.

International Valuation Standards use the identical three-approach, method-within-approach architecture, covered at the framework level in What Valuation Standard Actually Governs an SFA Registered Valuer?. Confirmed against the current IVS text, effective 31 January 2025, the chapter is now IVS 103, Valuation Approaches, renamed and renumbered from IVS 105, Valuation Approaches and Methods, with the specific methods relocated into appendices. The freed-up number, 105, now belongs to an unrelated new chapter, Valuation Models.

Say what you mean in a report. Name the approach when describing why a value is being derived that way, name the method when describing what was actually computed, and record a discount or premium as an adjustment on the output rather than as a technique of its own.

And check the governing instrument before reaching for any of this vocabulary. The moment a statute prescribes its own formula, the Standard steps aside by its own terms, and the question of whether a method sits under the right approach stops being a question at all.

The approach is the idea. The method is the arithmetic. The adjustment is neither.