Template for Bachelor thesis in International Business

IFRS – 13 fair value measurement gives precedence to the market valuation techniques based on comparable company analysis and market transaction (precedent transaction) instead of adhering to the intrinsic valuation. Income approach methods can only be used once the liquid and quoted market are not available and relevant data for establishing the market value of the assets cannot be found - then under level III, fair value measurement management's estimates of cash flow growths and discount rates can be used to establish value (IFRS -13, 2012). Schildbach (2011) argued that it is unfair to use relative valuation to establish Asset's fair market value. According to him, the market has already incorporated the growth potential of future cash flows and earnings in the current asset price, and using the identical market multiples to establish fair value through financial statements is absurd and adds no extra information for the investors to move the market to achieve the fair value of the Asset. Secondly, it is the market that converts non-fair disclosure in the financial statements to fair value. Similar arguments are made by (Tkachuk, 2019; Walton, 2013) that using relative valuation does not add any extra information for the investors because sometimes the relative value does not depict the Asset's actual value.

Another big problem of not using the underlying cash flows to value the Asset and using relative multiples is that relative multiples might not reflect the true potential of an asset. Under bullish market conditions, multiples are much higher, which may contrast the actual capacity of the assets to generate cashflows. Under bearish market conditions, the multiples might downplay the asset price. Therefore, using relative value multiples to establish fair value is not efficient.

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