6 Common Misconceptions About Professional Valuations Debunked

Introduction

Valuations are a critical yet often misunderstood discipline. Whether for mergers & acquisitions (M&A), regulatory reporting, litigation, or forfeiture proceedings, an accurate valuation can mean the difference between a sound financial decision and a costly mistake. Unfortunately, misconceptions about the valuation process persist, leading to unrealistic expectations, flawed strategies, and even legal disputes.

In this article, we’ll debunk the most common myths surrounding professional business valuations, separating fact from fiction and providing clarity on what truly drives an accurate, defensible and indisputable appraisal.

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Myth #1: “A Valuation Is Just a Simple Calculation”

Reality: Valuation Is Both Art and Science

Many assume valuation is merely plugging numbers into a formula or finding the same thing for sale online, while financial models and comparative statistics are essential, a professional valuation requires:

• Judgments in selecting appropriate methodologies such as DCF, market value or specific alternative valuation approaches.

  
  

• Qualitative and quantitative analysis and adjustments of competitive positioning, quantity discounts, quality impairments, industry risks, age related depreciation and market trend considerations.

  
  

• Adjustments for non-recurring items in timing and marketability and age discounts.

Example: Two identical iPhones may receive different valuations due to one being in the hands of a well-established retailer with after sales service and the other, a one time scalper.

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Myth #2: “Online Valuation Tools Are Just as Good as a Professional Appraisal”

Reality: Automated Tools Lack Nuance

Free online valuation calculators or AI-based estimators may provide a quick snapshot, but they often

• Ignore company and legal specific risks (e.g., key-person dependency, regulatory requirements, legal adjustments and risk exposure considerations).

  
  

• Use oversimplified multiples and assumptions that may not reflect true comparability to your purpose.

  
  

• Failure to account for economic and trending conditions, such as interest rate fluctuation impacts on discount rates, supply and demand trend adjustments and other macro and micro economic uncertainties.

  
  

Professional valuations involve deep due diligence, ensuring compliance with standards like USPAP, IRD and HKICPA guidelines, or even Hong Kong or Chinese GAAP.

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Myth #3: “The Highest Valuation Is the Most Accurate One”

Reality: Overvaluation Can Be Dangerous

Some business owners and Non-Private Departments like Appraisers who deliver inflated numbers, especially for fundraising, selling or even forfeiture proceedings. However:

• Excessive valuations can deter buyers/investors who spot inconsistencies and illogical assumptions.

  
  

• Legal Prosecutors/Defendants and courts scrutinize aggressive valuations, leading to costly and untimely disputes or even rejection of the whole valuation altogether.

  
  

• Future funding rounds may suffer if early commercial valuations aren’t justifiable.

  
  

An experienced and credible Valuation Professional provides an unbiased, conservative and supportable estimate - not a wishful set of figures on their way to the Moon.

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Myth #4: “Book Value is Market Value”

Reality: Accounting Value ≠ Fair Market Value

A company’s balance sheet reflects historical costs, not its true worth. Key disparities include:

• Intangible assets (brand value, non-brand impairments, , patents, customer relationships) are often under/overvalued or omitted.

  
  

• Legal restrictions multinational and local contraband, quotas and tariffs can overvalue items that you can’t or have difficulties in selling in certain markets.

  
  

• Depreciation doesn’t reflect actual asset utility (e.g., a 10-year-old machine may still be highly productive with proper maintenance).

  
  

• Liabilities like pending lawsuits may not be fully accounted for.

  
  

Professional valuations adjust for these factors to determine real non- intrinsic value.

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Myth #5: “Valuations Are Only Needed for M&As”

Reality: Valuations Serve Multiple Critical Purposes

Beyond M&A, valuations are essential for:

✅ Estate & Gift Tax Reporting (IRS requires defensible valuations for tax compliance).

✅ Shareholder Disputes & Litigation (e.g., divorce, minority oppression cases, forfeiture and valuation sensitive court cases).

✅ ESOPs & Employee Incentives (valuations for stock options).

✅Strategic Planning (assessing growth opportunities or restructuring needs of a company’s change in size).

✅Regulatory and listing requirements (Regular PPE and asset Valuations are always needed due to listing requirements and also staying compliant to industry and HK GAAP regulatory standards.

Regular valuations help Stakeholders keep up to date, track performance and make informed decisions.

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Myth #6: “All Valuation Experts Are the Same”

Reality: Credentials & Experience Matter

Not all Appraisers have the same rigor and flare. Key distinctions include:

• Accreditation (look for ASA or RICS (in UK) and HKICPA designations).

  
  

• Industry specialization (a PPE Valuator grasps Plant and Equipment trends; a Tech Valuator grasps SaaS metrics and a general merchandise Valuator understands FMCG salability trends).

  
  

• Experience ( you need time for a wine to age and mature)  

  
  

• Forensic accounting skills (critical for litigation-related valuations).

  
  

Always verify an appraiser’s Accreditation, Methodology transparency and Track record.

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Conclusion: Trust the Process, Not the Myths

Professional Valuations are complex, nuanced, and indispensable for sound, persistent and indisputable information. Relying on misconceptions can lead to overpaying, underselling, creating disputes with the opposition or regulatory noncompliance.

Seek Expert Guidance

If you’re preparing to commission a Valuation for court proceedings, value sensitive transactions, tax or civil dispute, please engage a Certified Valuation Professional to ensure accuracy, defensibility, indisputability and peace of mind.

About the Author(s):

Mark Yu is a seasoned valuation expert with over 15 years of experience in corporate valuations, Plant, Equipment and general stock appraisal, specializing in Corporate, Plant, Machinery and Generally Traded Merchandise Valuations. Mark has helped clients navigate complex valuations for transactions, regulatory reporting, litigation, Corporations and strategic planning and has appeared as a veteran "expert witness in valuations" within various Hong Kong courts.

Billy Leung is an Accredited Senior Valuation expert with over 20 years of experience in Plant, Equipment and general stock appraisal. He is an Accredited Senior Appraiser of ASA, (USA) with Specialties in Machinery & Technical for Plant, Machinery and Generally Traded Merchandise. Billy has performed many complex valuations involving hundreds of plant equipment in a single factory. He also helps clients navigate extensive valuations for regulatory reporting, litigation and strategic planning and has appeared as a veteran "expert witness in valuations" within various Hong Kong courts.

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