How to read a business valuation report.

A business valuation report — the document setting out a valuer's reasoned conclusion of an entity's value — is best read in five parts: basis and premise of value, scope and APES 225 engagement type, normalisation schedule, methodology and cross-check section, and limitations and reliance clauses. Prismi's guidance: the normalisation schedule and methodology section carry the most judgment — they explain why the number is what it is.

1. Basis and premise of value — what the valuer actually committed to

The basis of value (most commonly "market value" as defined by International Valuation Standards, IVS 104, or occasionally "fair value" for a shareholder or family law context) and the premise of value (going concern, orderly liquidation, or forced sale) are the two lines, usually stated in the engagement or scope section, that quietly determine everything else in the report. The natural instinct on receiving a valuation report is to turn to the conclusion page, read the figure, and file the report. That is a mistake if the report will ever be relied upon — by the ATO, a court, a buyer's due diligence team, or a bank. The conclusion is only as strong as the reasoning behind it, and the reasoning is where a reviewer will actually look. A report is not a certificate of value; it is an argument, supported by evidence, for why a particular figure within a supportable range is the most defensible one. Market value assumes a hypothetical willing but not anxious buyer and seller, both reasonably informed, with the asset exposed to the market for a reasonable period. Fair value in a shareholder dispute context can exclude minority discounts that a market value basis would otherwise apply. If the basis stated does not match the purpose you commissioned the report for — for example, a market value report being relied on for a fair value shareholder exit — the report may not support what you are trying to do with it. Check this line before reading anything else.

2. Scope and engagement type — what the report can and can't be used for

Every report prepared under APES 225 (the professional standard binding CA ANZ, CPA Australia and IPA members) states which of its three engagement types applies: a Valuation Engagement, a Limited Scope Valuation Engagement, or a Calculation Engagement. This distinction matters more than most readers realise. A Valuation Engagement gives the valuer freedom to select the approaches and methods appropriate to the circumstances and reach an independent conclusion of value. A Limited Scope Valuation Engagement restricts that freedom in a way the report must disclose. A Calculation Engagement applies methods and assumptions agreed with the client and reports a calculated value — expressly not a conclusion of value, and carrying a narrower reliance basis under review. The scope section also states who the report is addressed to and for what purpose (the "intended user" and "intended use"). A report scoped for one purpose — say, an internal restructure — is not automatically valid evidence for another purpose, such as a Family Court proceeding or an ATO review under the ATO's market valuation guidance. If you intend to rely on the report for something other than its stated purpose, that is a conversation to have with the valuer before you rely on it, not after.

3. The normalisation schedule — where the real judgment lives

The normalisation (or "add-back") schedule adjusts the entity's reported earnings to a maintainable basis by removing one-off items, adjusting owner-operator remuneration to a market salary, and correcting for related-party transactions that would not exist under arm's-length ownership — and it is usually the least-read, most consequential section in the report. Every adjustment in this schedule moves the earnings base the entire valuation is built on — a $50,000 add-back capitalised at a 4x multiple is a $200,000 swing in the final figure. Read each line and ask three questions: is there documentary evidence for the adjustment (invoices, board minutes, employment records); is the market salary benchmark sourced or asserted; and would a sceptical accountant accept the adjustment as genuinely one-off, or does it look like it recurs every few years under a different label. A thin or unevidenced normalisation schedule is the single most common weakness a reviewer will find in a challenged valuation.

4. Methodology and cross-check sections — why one method leads

The methodology section tests the methodologies that could reasonably apply to the entity (Capitalisation of Maintainable Earnings, EBITDA or revenue multiples, Net Asset Value, Discounted Cash Flow, or Comparable Transactions), states which one leads the conclusion and why, and uses the others as cross-checks — a properly reasoned report never simply applies one formula. Read the reasoning for the primary methodology selection — it should reference the entity's characteristics (maturity, asset intensity, earnings volatility, forecast reliability) rather than simply defaulting to the most common method. Then look at the cross-check figures. If the cross-check methodologies land materially outside the primary conclusion, the report should explain why — a NAV cross-check sitting well above an earnings-based conclusion, for instance, should trigger a discussion of whether NAV is actually the more supportable floor. A report where the cross-checks are calculated but never discussed is a report that has done the arithmetic without doing the analysis.

5. Limitations, qualifications and reliance clauses — what they actually mean

The limitations section of a valuation report typically covers the information relied upon and the extent to which it was independently verified (most valuations rely on management-supplied data without audit-level verification); the valuation date and the fact that value can change materially after that date; hypothetical or extraordinary assumptions the conclusion depends on; and — critically — who the report can be relied upon by. A reliance clause restricting the report to the named addressee and stated purpose is standard practice, not evasiveness; it exists because a valuation conclusion is only supportable within the facts, assumptions and purpose it was prepared for. If a third party (a bank, an incoming co-owner, opposing counsel) wants to rely on the report, the limitations section tells you whether that is contemplated or whether a new or updated engagement is needed. Prismi's reports state these limitations plainly and set out the specific assumptions the conclusion depends on, so a reader can see exactly what would need to hold true for the figure to stand.

The five pages worth 80% of your attention

• ·The basis and premise of value statement (usually page 2–3) — confirms the report matches your purpose
• ·The normalisation or add-back schedule — the single biggest driver of the earnings base
• ·The methodology selection reasoning — why this method leads, not just the calculation
• ·The conclusion of value reasoning — why this figure within the supportable range, not another
• ·The limitations, assumptions and reliance section — what the conclusion depends on and who can rely on it

Matching the report depth to what you need to defend

How much scrutiny a report needs to withstand should have been decided before it was written, and it shows in the tier. A Prismi Essential report, from $1,495 + GST (10–14 business days), is built for internal decision-making and lower-stakes purposes where a single primary methodology with reasoned support is sufficient. A Comprehensive report, from $3,995 + GST (15–25 business days), tests multiple methodologies with fuller cross-checks and suits most CGT, Division 7A and restructure purposes. A Defensible Valuation File, from $8,995 + GST (25–35 business days), is built for matters where ATO review, litigation or a sceptical counterparty is a real prospect — the normalisation and methodology sections are documented to a standard designed to withstand line-by-line challenge. A Valuation Range & Scenario Review, from $12,995 + GST (30–45 business days), is for complex adviser-led matters needing scenario and sensitivity modelling across the supportable range. If you are reading a report and finding the reasoning thinner than the situation warrants, that is usually a sign the engagement tier was set for a different purpose than the one you now need it for.