What is “Market Value” When Considering a Business’ Value Under International Valuation Standards

When it comes to valuing a business, the International Valuation Standards (IVS) offer a robust framework to guide professionals in determining its worth. Central to this framework is the concept of "Market Value," a critical component that drives the process of valuing a business under IVS standards. In this article, we'll explore the importance of the key components of Market Value.

What is Market Value?

The term "Market Value" is defined under IVS as follows:

"Market Value is the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction after proper marketing and where the parties had each acted knowledgeably, prudently, and without compulsion."

In the context of valuing a business under IVS standards, Market Value refers to the estimated worth of the business as a whole, assuming that it is sold in an open and fair market where both the buyer and the seller have access to all relevant information and act in their best interests. The valuation is based on the business's future potential, financial performance, and other relevant factors. Market Value is often considered the most relevant and widely used basis for valuing businesses and assets in a variety of industries and contexts.

Below I discuss the essential components that shape the concept of Market Value under IVS:

Willing Buyer and Willing Seller

Market Value assumes that the business is being bought and sold by parties who genuinely want to engage in the transaction. No pressure or external influence should sway their decisions. Both the buyer and the seller are rational, acting in their best interests to secure a fair deal.

Arm's Length Transaction

An arm's length transaction denotes that the buyer and seller have no special relationship that could potentially skew the terms of the deal. This ensures that the business is valued objectively and without any bias.

Valuation Date

The valuation date is like a snapshot of the business's worth, capturing its position within the economic landscape at that particular time. It's essential to consider economic indicators and conditions relevant to that date for an accurate valuation.

Proper Marketing

For a true Market Value assessment, the business should be exposed to the market through a reasonable marketing process. This means that prospective buyers have had sufficient time and opportunity to express their interest in acquiring the business.

Knowledgeable and Prudent Parties

Market Value considers parties who have access to all relevant information about the business. Both the buyer and the seller possess knowledge of the industry and market trends, enabling them to make informed decisions. Acting prudently ensures that the transaction is well-considered and beneficial for both parties.

Financial Performance and Potential

The heart of any business valuation lies in its financial performance. Historical financial statements and future projections play a crucial role in assessing the Market Value. Additionally, understanding the business's growth potential and prospects provides insight into its long-term viability.

Risk and Return

Market Value takes into account the level of risk associated with the business. A higher-risk business may have a lower Market Value due to the uncertainty and potential volatility of its future cash flows. Investors often seek an appropriate balance between risk and return in their investment decisions.

Comparable Transactions and Market Data

To enhance the accuracy of Market Value, valuers may consider recent transactions involving similar businesses or rely on market data from comparable companies. These benchmarks offer valuable context to assess the business's relative worth.

Real Property and Intangible Assets

In some cases, the business's real property and intangible assets, such as intellectual property or brand value, can significantly impact its Market Value. Including these assets in the valuation provides a comprehensive picture of the business's overall worth.

Legal and Regulatory Considerations

The valuation process must account for any legal or regulatory factors that could affect the business's value. Existing contracts, permits, licenses, or pending litigation may influence the final valuation.


Market Value, as defined under IVS standards, is the foundation of business valuation, allowing professionals to determine a fair and objective worth for a business. By considering willing and knowledgeable parties, market exposure, financial performance, and potential, as well as risk and return, valuers can arrive at a comprehensive Market Value assessment. Real property, intangible assets, and legal factors further refine the valuation process, providing a holistic understanding of the business's true worth. As the economic landscape evolves, valuers continue to employ these critical components to assess Market Value accurately, empowering investors and stakeholders to make informed decisions about the businesses they engage with.

Find Out More

Groves & Partners are expert valuation advisors, with significant experience in undertaking business valuations for a wide range of purposes. To find out more about our valuation services please phone us on 1300 892 717 (+61 2 7208 7970) or email info@groves.com.au.

Written by Stephen Groves