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Article 17
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An expert shall evaluate the level of future operating income and profitability of the object under review and take at least the following into account when adopting the income approach:
- future benefit flow
- obtaining historical financial information and making the necessary routine adjustments thereto.
- considering the industrial prosperity, market conditions, and the past operation or use conditions of the object under review.
- analyzing the reasonableness of assumptions made in the analysis of key factors concerning prospective financial information, comparing projected values and historical values of the material financial information items on which the prospective financial information is based, and analyzing the reasons for and reasonableness of material discrepancies (if any) between those values, with relevant supporting material obtained.
- increased capital expenditure and financial cost to accommodate future operational needs.
- determination and basis of the number of periods(forecast period and perpetual period) for estimating future income.
- determination of the future benefit flow and final value and basis and reasonableness of the relevant parameters (such as growth rate, tax rate, inflation rate), which should be compared with the corresponding information of market participants.
- consistency between the growth or decline of the future benefit flow and the analysis of economic and market conditions and management’s anticipation of the future performance of the object under review, etc.
- discount rate
- parameters and basis used for the choice of the discount rate, and reasons therefor.
- consistency between the discount rate and basis of extrapolation of the future cash flow.
- the discount rate of an intangible asset is normally higher than the overall discount rate of the enterprise using said asset.
- provide data in support of a premium or discount, for example, obtain information of a professional database or professional study report or consult other experts, and, if a similar transaction is drawn on, evaluate the appropriateness and reasonableness of the information on the transaction used.
- conduct a sensitivity analysis of any change to an assumption of a key input value where necessary.
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