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: "a valuation approach that 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: "a valuation approach that 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: "a valuation approach that 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 is a category, not a technique. It says which economic idea the value is being 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 actually 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." A method is the specific, named technique inside an approach, the thing that actually produces a number. ICAI VS 103 names eight, unevenly spread across the three approaches.

Under the Market Approach:

• Market Price Method. The traded price of the asset itself, averaged over a reasonable period, where the asset is actually traded in an active market.
• Comparable Companies Multiple (CCM) Method. Also known as the Guideline Public Company Method: value derived from market multiples of comparable listed companies.
• Comparable Transaction Multiple (CTM) Method. Also known as the Guideline Transaction Method: value derived from multiples paid in actual comparable transactions, rather than ongoing trading prices.

Under the Income Approach:

• Discounted Cash Flow (DCF) Method. Discounts the cash flows an asset is expected to generate over its explicit forecast period, plus a terminal value, back to the present. The method behind the core methodology described on the Services page.
• Relief from Royalty (RFR) Method. Values an asset by the present value of the royalty payments its owner avoids by owning it instead of licensing it.
• Multi-Period Excess Earnings Method (MEEM). Values an asset by the cash flows left over after charging the business for the use of every other asset that contributes to generating them.
• With and Without Method (WWM). Values an asset as the difference between projected cash flows for the business with the asset in place and without it.
• Option Pricing Models. The Black-Scholes-Merton and binomial models, named specifically, for valuing options.

Under the Cost Approach:

• Replacement Cost Method. Also known as the Depreciated Replacement Cost Method: the cost a market participant would incur to recreate an asset of comparable utility, adjusted for obsolescence.
• Reproduction Cost Method. The cost to recreate an exact replica of the asset itself, also adjusted for obsolescence.

The Standard is explicit that RFR, MEEM, and WWM are not general-purpose tools: "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." Four of the eight named methods exist for a narrow, specific job. Only DCF, the two market multiple methods, and the two cost methods are of genuinely general application.

Neither Discount for Lack of Marketability (DLOM) nor Control Premium and Discount for Lack of Control (DLOC) is a ninth method. The Standard places them as a deliberate third step, an adjustment layered on top of whatever a method's output already is: "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 is this worth on the terms the method assumes." A discount or premium answers a second, separate question: does the specific interest being valued actually have those terms, or does it need adjusting for a control position, or the lack of one, or an inability to sell quickly. This is the mechanic underneath Control Premium: Explicit Duty Under IBC, Implicit Duty Everywhere Else. One loose thread from that piece can now be tied off: ICAI's own glossary does define Control Premium directly, in terms that track IVS's Market Participant Acquisition Premium concept 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 is exactly this carve-out in practice, covered in Angel Tax Is Abolished. Rule 11UA Isn't. Its closed list, the net-asset-value formula, DCF, and for non-residents five further named methods, does not ask whether a valuer picked the "right approach." It names its own methods directly and stops there, which is also why Berkus, Scorecard, and Risk Factor Summation fail on two separate tests at once: they sit outside ICAI's three approaches, and outside Rule 11UA's closed list, for the same underlying reason. Neither framework was built with room for a heuristic that does not discount a cash flow, derive from an actual transaction, or price a replacement cost.

The three-method convention from Merger Valuations: Conditional Under Company Law, Mandatory Under SEBI, traced there 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," and it is tempting to read that as one method drawn cleanly from each of ICAI's three approaches. It does not quite line up. The yield and market value methods map onto the Income and Market approaches well enough, but the asset or net-asset-value method appears nowhere by that name in ICAI VS 103's Cost Approach, which names only Replacement Cost Method and Reproduction Cost Method. NAV-based valuation sits in the same conceptual family as the Cost Approach without being one of its two named methods. A nearly thirty-year-old judicial convention and a 2018 professional standard were never drafted to reconcile term for term.

International Valuation Standards run the identical three-approach, method-within-approach structure, covered at the framework level in What Valuation Standard Actually Governs an SFA Registered Valuer?. Confirmed directly against the current IVS text, effective 31 January 2025: the chapter is now numbered 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.

"Approach" is the economic idea. "Method" is the technique that turns the idea into a number. A discount or premium is a third, separate adjustment layered on top of a method's output, not a method in its own right. And a surprising amount of what looks like a fourth category, Rule 11UA's closed list, sits entirely outside this framework by design, because the Standard itself says so the moment a statute prescribes its own formula. Getting the three words straight does not change what any single valuation is worth. It is just the vocabulary everything else in this series has been assuming.