IBBI Valuer Formula Sheet
Ten formulas, what each one is for, and a worked example.
Every IBBI valuation exam, whether Land and Building, Securities or Financial Assets, or Plant and Machinery, rests on three approaches: income, market and cost. These ten formulas are the arithmetic behind them.
Formulas 1 to 5 matter most for SFA and formulas 6 to 10 for Land and Building, but every asset class expects you to know all three approaches.
You save ₹250
- Full-length mocks
- Case-study practice
- Law module sets
One payment, no subscription · Valid for 1 month
The 10 Formulas
1
Formula
Discounted cash flow value
Expression
V = Σ FCFₜ ÷ (1 + r)ᵗ + TVₙ ÷ (1 + r)ⁿ
Use it for
Income approach: value of a business or an income-producing asset.
2
Formula
Terminal value (Gordon growth)
Expression
TVₙ = FCFₙ₊₁ ÷ (r − g)
Use it for
Value of cash flows beyond the explicit forecast period.
3
Formula
Cost of equity (CAPM)
Expression
Kₑ = R_f + β × (R_m − R_f)
Use it for
Discount rate for equity cash flows.
4
Formula
WACC
Expression
WACC = Kₑ × E ÷ V + K_d × (1 − t) × D ÷ V
Use it for
Discount rate for free cash flow to the firm.
5
Formula
Market multiple
Expression
Value = Subject's metric × Comparable multiple (e.g. EV/EBITDA)
Use it for
Market approach using listed comparables or transactions.
6
Formula
Income capitalisation
Expression
Value = Net operating income ÷ Capitalisation rate
Use it for
Rent-producing property valued on a stable income.
7
Formula
Years' purchase (n years)
Expression
YP = [1 − (1 + r)⁻ⁿ] ÷ r
Use it for
Present value of ₹1 a year for n years. Multiply by net income.
8
Formula
Years' purchase (perpetuity)
Expression
YP = 1 ÷ r
Use it for
Freehold income expected to continue indefinitely.
9
Formula
Depreciated replacement cost
Expression
DRC = Replacement cost − (Replacement cost − Salvage) × Age ÷ Total life
Use it for
Cost approach for buildings and plant.
10
Formula
Net asset value
Expression
NAV = Fair value of assets − Liabilities
Use it for
Asset approach for holding companies or liquidation.
| # | Formula | Expression | Use it for |
|---|---|---|---|
| 1 | Discounted cash flow value | V = Σ FCFₜ ÷ (1 + r)ᵗ + TVₙ ÷ (1 + r)ⁿ | Income approach: value of a business or an income-producing asset. |
| 2 | Terminal value (Gordon growth) | TVₙ = FCFₙ₊₁ ÷ (r − g) | Value of cash flows beyond the explicit forecast period. |
| 3 | Cost of equity (CAPM) | Kₑ = R_f + β × (R_m − R_f) | Discount rate for equity cash flows. |
| 4 | WACC | WACC = Kₑ × E ÷ V + K_d × (1 − t) × D ÷ V | Discount rate for free cash flow to the firm. |
| 5 | Market multiple | Value = Subject's metric × Comparable multiple (e.g. EV/EBITDA) | Market approach using listed comparables or transactions. |
| 6 | Income capitalisation | Value = Net operating income ÷ Capitalisation rate | Rent-producing property valued on a stable income. |
| 7 | Years' purchase (n years) | YP = [1 − (1 + r)⁻ⁿ] ÷ r | Present value of ₹1 a year for n years. Multiply by net income. |
| 8 | Years' purchase (perpetuity) | YP = 1 ÷ r | Freehold income expected to continue indefinitely. |
| 9 | Depreciated replacement cost | DRC = Replacement cost − (Replacement cost − Salvage) × Age ÷ Total life | Cost approach for buildings and plant. |
| 10 | Net asset value | NAV = Fair value of assets − Liabilities | Asset approach for holding companies or liquidation. |
What the Symbols Mean
- FCF
- Free cash flow.
- r, g
- Discount rate and long-term growth rate. The Gordon formula needs r greater than g.
- E, D, V
- Market values of equity and debt, and their sum.
- t
- Tax rate, which reduces the cost of debt.
Exam-style questions. No signup.
Worked Example: Valuing a Rented Building
A building earns net operating income of ₹12,00,000 a year. Comparable sales show an 8% capitalisation rate.
- 1
Perpetual income
Value = 12,00,000 ÷ 0.08 = ₹1,50,00,000.
- 2
If the income lasts only 20 years
YP for 20 years at 8% = [1 − 1.08⁻²⁰] ÷ 0.08 ≈ 9.818.
- 3
Value the limited income
12,00,000 × 9.818 ≈ ₹1,17,82,000. The shorter income stream is worth less.
Check the Discount Rate Matches the Cash Flow
Free cash flow to the firm is discounted at WACC. Free cash flow to equity is discounted at the cost of equity. Exam options often mix the two.
FAQs
Are the same formulas tested in all three asset classes?expand_more
The approaches are common to all three. SFA leans on DCF, CAPM and multiples. Land and Building leans on capitalisation, years' purchase and depreciated replacement cost.
What is the capitalisation rate?expand_more
The rate that converts one year's net income into a value. It's usually taken from comparable sales: net income ÷ sale price.
Why must r be greater than g in the Gordon formula?expand_more
If growth were equal to or above the discount rate, the formula would give an infinite or negative value.
Access exam-specific mock tests directly from your Android device.Trusted by learners and rated 4.6★ on Google Play.Next steps
Take a full valuation exam mock100 marks across every module, timed and scored.