FEID Circular No. 01: Master Circular on Share Transfer and Repatriation of Sale Proceeds for Unlisted Companies

Foreign Exchange Investment Department
Bangladesh Bank
Head Office
Dhaka www.bb.org.bd
FEID Circular No. 01 Date: 8 March, 2026
All Authorized Dealers in Foreign
Exchange in Bangladesh
Dear Sirs,
Master circular on transfer of shares and repatriation of sale proceeds of shares in favor of non-resident in private/public limited companies not listed with stock exchanges. Please refer to paragraphs 2(B) and 3(B), Chapter 9 of the Guidelines for Foreign Exchange Transactions-2018 (GFET) Volume-1, FEID Circular No. 1, dated May 6, 2018, and FEID Circular Letter No. 01, dated June 18, 2020, where detail of the share transfer and valuation procedures regarding the non-resident equity investments in companies not listed with stock exchanges is explained. To bring liberalization in repatriation, rationalization and further simplification in the valuation and reporting process, the following consolidated instructions shall be followed:
Transfer of shares
1.1. Non-resident to resident
a) Authorized Dealer (AD) banks shall repatriate proceeds from the transfer/sales of shares without prior approval from Bangladesh Bank in the following cases:
i. Irrespective of any amount, when the deal value of the shares does not exceed
the Net Asset Value (NAV) based on the latest audited financial statements with Document Verification Code (DVC) subject to compliance with instructions in paragraph 5.1. NAV calculation shall be signed by the competent authority of target company which shall be counter signed by the regular auditor.
ii. An independent valuation report is not required when the deal value of the
shares does not exceed Bangladeshi Taka (BDT) 10,000,000 (ten million) or equivalent foreign currency. However, a statement jointly signed by the buyer and seller justifying the deal value shall be submitted.

iii. When the deal value of the shares does not exceed BDT 1,000,000,000 (one
billion) or equivalent foreign currency, subject to the fair value, determined by an independent valuer using the valuation methods specified in this circular. b) Except for the cases outlined in sub-paragraph 1.1(a) above, AD banks shall apply for approval from Bangladesh Bank for the transfer of shares from non-residents to residents and repatriation of sale proceeds thereof following the instructions laid down in paragraph 2 with necessary documents as mentioned in Annexure-B including valuation report.
1.2. Resident to non-resident and non-resident to non-resident
AD banks shall facilitate the resident and non-resident shareholders in transferring shares without prior approval from Bangladesh Bank complying with the following conditions:
a) Transfer is subject to fair value of shares of the target company. b) A valuation report is not necessary if the deal value of the shares does not exceed (or equal) BDT 10,000,000 (ten million) or equivalent foreign currency. In this case, a statement jointly signed by the buyer and seller justifying the deal value shall be submitted, beyond which, valuation report is required. c) Resident shareholders receiving payment against sales of shares shall submit valuation report (where applicable) to the AD along with Memorandum of Understanding (MoU) for share sale-purchase along with Form-C for encashment of inward remittances.
2. General instructions for share transfer procedure
a) A MoU has to be signed with date between the buyer and seller for share sale￾purchase. b) While signing the MoU, the date of the target company’s latest audited financial statements taken into consideration shall not be older than 6 (six) months from the date of the MoU. In case of failure to do so, the target company has to prepare audited financial statements for the interim period. c) The said transfer procedure shall be completed within the next 45 days from the signing date of MoU or Bangladesh Bank approval date (when applicable), whichever is later. d) AD shall execute repatriation of sale proceeds [except sub-paragraph 1.1(b)] within 05 (five) working days, if no observation/deviation/discrepancy is found. In case of any observation, deviation, or discrepancy, the AD shall forward the application to Foreign Exchange Investment Department (FEID), Head Office, Bangladesh Bank.

e) AD shall forward the application to FEID, Head Office, Bangladesh Bank within 03 (three) working days where prior approval of Bangladesh Bank is required [as mentioned in sub-paragraph 1.1(b)]. f) If deemed necessary, AD can credit sale proceeds of share to escrow account with prior permission from Bangladesh Bank. g) The transfer value of shares of the target company shall be consistent with the latest issue value (if any) within one year. h) Non-resident shall pay gain tax and stamp duty in accordance with the existing laws (if applicable) with fund brought through banking channel from abroad. No part of the tax and duty shall be paid by the target company whose shares are being transferred. ADs shall verify and ensure that the above instructions have been duly complied with. i) ADs shall constitute a committee headed by the Chief Financial Officer (CFO) to decide on the repatriation of sale proceeds under sub-paragraph 1.1(a)(ii) and 1.2(b) and a committee headed by the Chief Executive Officer (CEO) to decide on the cases under sub-paragraph 1.1(a)(iii). ADs shall also ensure that such committees comprise of officials possessing the requisite certification (such as CFA), training, knowledge, and expertise to evaluate valuation reports. j) ADs may charge reasonable fees, as negotiated with their clients, for valuation assessments conducted by their internal committees headed by the CFO or CEO. k) For repatriation of sale proceeds of shares, ADs shall satisfy themselves to the effect that the target company has complied with the provision of paragraph 2(A) and 2(B), Chapter 9 of GFET regarding issuance of share (including bonus and right share) and any prior transfer of shares in favor of or by non-resident. ADs shall satisfy themselves before forwarding permission requests to Bangladesh Bank that the above instructions have been complied with. l) Foreign investors shall be allowed to transfer shares equivalent to the value of the foreign funds received by the local company/transferor. The value shall be calculated in BDT at the exchange rate prevailing on the date of receipt of the foreign funds. m) Fair value of sale proceeds of share is remittable abroad and/or may be credited (net of tax) to FCY account of share holders with AD bank which can be subsequently remitted abroad or can be used for further investment in equity and in securities listed with stock exchanges. n) ADs shall observe compliance of KYC, AML/CFT standards, tax rules and other applicable regulations. o) ADs shall ensure that all valuer professionals possess the requisite expertise and technical knowledge in International Valuation Standards.

p) If not fully satisfied about appropriateness of the valuation arrived at, Bangladesh Bank/ADs reserve the right to reassess the value, if overvaluation of any assets or undervaluation of any liabilities are observed based on the financial statements submitted along with the application or on-site inspection if necessary.
3. Post facto reporting requirements
ADs shall submit post facto reports in case of paragraph 1.1 and 1.2 detailing the transactions to FEID, Bangladesh Bank within 14 days of transfer along with the following documents:
a) Attested copy of instrument of transfer of shares (Form 117) endorsed by Registrar of Joint Stock Companies & Firms (RJSC); b) Attested copy of up-to-date Schedule-X; c) Encashment certificate/TM form with FX transaction ID; d) Valuation report (where applicable); e) MoU for share sale-purchase; f) Attested copy of the report/meeting minutes of the committee formed under sub￾paragraph 2(i) regarding the repatriation of sale proceeds; g) Additional documents if required.
4. Capital reduction
Remittance resulting from capital reduction in a target company shall be subject to determination of fair value of shares in accordance with paragraph 5, the fair value of the company shall be duly included in the redemption plan submitted before the Honorable Court. In this regard, the company shall ensure that the applicable regulations of Bangladesh Bank relating to receiving of value of funds from abroad, share issuance and reporting requirements have been complied with.
5. Valuation methods and requirements
Bangladesh Bank shall accept the fair value of the shares determined by the valuation methodologies viz. net asset value approach, market value approach and discounted cash flow approach. The fair value of the shares shall be determined by weighted average calculation of all the 3 (three) valuation approaches or on any of the suitable approaches depending on the nature of the company, having justified ground.
5.1. Asset Based approach
5.1.1. Under this method, a company’s value is derived by estimating the fair market
value of its individual assets and then deducting its outstanding liabilities. While examining the valuation report, ADs shall satisfy themselves from the documents of the target company countersigned by the auditor to the effect that:
a) Audited financial statements have contained no revalued assets, no intangible assets and no expenses/losses shown as asset; b) The certificate issued by the regular auditor of the target company should specify that the impairment of assets have been duly adjusted;

c) There is no abnormal growth (higher than 10% of industry average) in total assets in any of last three years, particularly in the last year.
5.1.2. However, Bangladesh Bank can accept the NAV calculation with revaluation
reserves if following terms and conditions are fulfilled￾a) Time-lag between two valuations for the same class of assets shall not be less than three years; provided that no upward revaluation of an asset shall be made within two years of its acquisition. b) In case of revaluation of freehold land, revalued amount shall reflect fair value of the land. c) The following assets will, however, not be allowed for revaluation – (i) Leasehold lands and buildings on such lands having no transferring rights, total lease period below 99 years and remaining lease period below 10 years cannot be revalued; (ii) Plants and machineries acquired in second hand conditions, acquired in brand new condition but having remaining economic life of less than 50% of its total useful life, as estimated at acquisition; (iii) Tin-shed buildings, buildings having remaining economic life of less than 50% of its total useful life, as estimated at construction; (iv) Vehicle, furniture & fittings, office equipments, loose tools and intangible assets.
5.2. Market approach
Multiples-based analysis or comparable analysis is one of the widely used tools in private company valuation. Comparable company trading multiples analysis utilizes the valuation multiples of similar or comparable publicly or privately traded companies to value a target unlisted company. The multiples can be equity-based multiples such as Price to Earnings (P/E), Price to Book Value of Equity (P/B), and Price to Sales (P/S). The most popular and widely used equity based multiple is the earnings multiple. General instructions to be followed for applying market approach:
a) Peers can be grouped generally based on the similar products within Bangladesh. If peer company or sector multiple is not available then the overall market multiple shall be used. b) Discard extreme values/ratio of companies in peer group. Preferably values/ratios beyond the range of mean ± 2.5 standard deviation should be disregarded. c) Consider values (Earnings, Book value, sales etc) of companies both in target and peer group listed in the stock exchange(s) based on audited financial statements. Earning and Sales shall be considered based on the last three years audited financial statements whilst Book Value shall be based on the latest audited financial statement.

d) Market value should be average of one year month end average values of companies of peer group prior to the MoU for share sale purchase signing date between buyer and seller.
5.3. Discounted Cash Flow (DCF)/ Income approach
DCF method, alternatively known as Income Approach, is a widely recognized valuation technique. It estimates the value of a business or asset by projecting its expected future cash flows and converting them into a single present value using a suitable discount rate.
6. Instructions for valuers and valuation report
a) Valuation reports shall be prepared exclusively by qualified professionals meeting the following criteria:
(i) Merchant Bankers holding a valid license from Bangladesh Securities and Exchange Commission (BSEC); or (ii) Chartered Accountants who are listed with Bangladesh Bank/BSEC for auditing banks, financial institutions, and listed companies. b) The valuation report by eligible valuer must be supported by full explanation justifying the fair value. c) A report and fairness opinion confirming that the valuation has been undertaken in accordance with the internationally best practices and that they have maintained the fundamental principles of ethical conduct namely integrity, objectivity, competence, confidentiality and professional behavior regarding the valuation. d) The revalued amounts of assets and liabilities shall be included in the financial statements in accordance with the applicable provisions of International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) as adopted in Bangladesh and instructed in paragraph 5. e) The valuer shall be independent from the target company, its directors, auditors and other stakeholders. f) The valuer shall examine the assets and liabilities of the target company in accordance with the indicative guidelines. g) The valuer shall remain fully liable for any errors, omissions, misstatements, or anomalies in the valuation report, notwithstanding Bangladesh Bank’s acceptance of the report. h) The valuer should comply with the requirements of the global standards, but not less stringent than the instructions of the indicative guidelines.

i) Any fraud, forgery, or misrepresentation committed by the valuer or any other party in connection with the valuation report shall be subject to punishment under the relevant provisions of the existing laws. j) Annexure-A to this circular provides indicative guidelines for arriving at fair value. Instructions regarding transfer of shares and repatriation of sale proceeds of shares in favor of non-resident in private/public limited companies not listed with stock exchanges available in the Guidelines for Foreign Exchange Transactions-2018, Vol.-1 (GFET) and its subsequent circulars will stand repealed with issuance of this circular. Please bring the instructions of this circular to the notice of all your concerned clientele. Yours Faithfully, (Mahmudun Nabi) Director (FEID) Phone: +88-02-9530144

Annexure-A
Indicative guidelines on determination of fair value of shares of unlisted companies Contents
Chapter 1: Overview of Valuation................................................................................................9
1. Meaning of Value and Some Definitions .................................................................................. 9
2. Premise of Valuation................................................................................................................. 9
3. Valuation Standards.................................................................................................................. 9
4. Valuation Process.................................................................................................................... 10
5. Contents of Valuation Report ................................................................................................. 10
Chapter 2: Approaches of Valuation ..........................................................................................11
1. Asset Based Approach............................................................................................................. 11
a) Steps in Asset-Based Valuation:.......................................................................................... 11
b) Example............................................................................................................................... 12
2. Market Based Approach ......................................................................................................... 13
a) Comparable Public Company Method................................................................................ 13
b) Implementation Framework ............................................................................................... 13
c) Peer Group Selection and Market Value Determination.................................................... 14
d) Industry-Specific Multiples Selection.................................................................................. 14
e) Methodological Considerations and Best Practices............................................................ 14
f) Strengths of the Market Approach ..................................................................................... 15
g) Limitations of the Market Approach................................................................................... 15
h) Integration with Other Valuation Approaches ................................................................... 16
i) Example............................................................................................................................... 16
3. Income Based Approach ......................................................................................................... 17
a) Practical Implementation Steps.......................................................................................... 17
b) Key Concepts related to DCF Method................................................................................. 18
c) Forecasting Components.................................................................................................... 19
d) Example............................................................................................................................... 20
e) Best Practices and Limitations............................................................................................ 22

Chapter 1: Overview of Valuation

1. Meaning of Value and Some Definitions
   According to the International Valuation Standards (IVS) 2025, value is not a fact but an estimate or opinion of the most probable price that would be achieved in a hypothetical exchange within a free and open market. Key definitions related to valuation include:
    Market Value: 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.  Fair Value: The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.  Investment Value: The value of an asset to a particular owner or prospective owner for individual investment or operational objectives.  Synergistic Value: The result of a combination of two or more assets or interests where the combined value is more than the sum of the separate values.  Liquidation Value: The amount that would be realized when an asset or group of assets is sold on a piecemeal basis with reasonable market period.
2. Premise of Valuation
   The IVS 2025 recognizes different premises of value that reflect the current or potential use of an asset:
    Highest and Best Use: The use of an asset that maximizes it’s potential and is physically possible, legally permissible, and financially feasible.  Current Use: The way an asset is currently utilized, even if not it’s highest and best use.  Orderly Liquidation: Value when assets are sold piecemeal, with reasonable marketing period.  Forced Sale: Circumstances where the seller is under compulsion to sell with an inadequate marketing period. The premise of valuation must be appropriate to the purpose and clearly stated to avoid misunderstanding by users of the valuation report.
3. Valuation Standards
   The International Valuation Standards 2025 provide a framework for performing valuations and comprise:
    General Standards: Apply to all types of assets and valuation purposes  Asset Standards: Contain requirements related to specific asset classes  Valuation Applications: Address specific purposes like financial reporting The IVS 2025 emphasizes the importance of independence, objectivity, transparency, and professional competence. Valuation professionals must adhere to these standards

to maintain trust in the profession and provide consistent, high-quality valuations globally.
4. Valuation Process
According to IVS 2025, the valuation process includes:
 Identification of the asset or liability to be valued  Confirmation of the purpose and basis of the valuation  Determination of the scope of the assignment  Collection and analysis of relevant data  Selection of appropriate valuation approaches and methods  Application of the chosen approaches and methods  Reconciliation of value indications  Formation and reporting of the value conclusion The process must be systematic, transparent, and well-documented, with each step informing the next.
5. Contents of Valuation Report
The valuation report should include at minimum:
 Identity of the valuer and client
 Purpose of the valuation
 Identification of the asset(s) or liability(ies) valued  Basis or bases of value  Valuation date  Extent and details of how the valuer conducted the investigation  Nature and sources of information relied upon  Assumptions and special assumptions  Restrictions on use, distribution, or publication  Valuation approach(es) and reasoning  Conclusion of value and principal reasons for conclusion  Date of the report More detailed reports may include market analysis, property descriptions, and supporting exhibits.

Chapter 2: Approaches of Valuation
Professional valuation practice is built on three primary approaches to valuing assets and liabilities: the Asset-Based Approach, the Market Approach, and the Income Approach. Each offers a structured methodology for determining value, drawing on different perspectives and types of available information. Valuation professionals must select the most appropriate approach(es) based on the nature of the asset, available information, and the purpose of the valuation, often employing multiple approaches to arrive at a well-supported conclusion of value. Details on each of the approaches are discussed below.
1. Asset Based Approach
The asset-based approach, alternatively referred to as the Net Asset Value (NAV) or cost approach, establishes a business's value by calculating the Fair Market Value (FMV) of its net assets—the total assets minus total liabilities. Simply put, this valuation method determines what a company is worth based on the current market value of all its underlying assets. The asset-based approach is best suited for valuing companies that have significant tangible assets. According to international valuation standards (IVS) and best practices, this method is most appropriate for:
1. Asset-Intensive Companies – Companies with a large base of tangible assets, such
as:
o Real estate companies (e.g., property holding firms, REITs), o Manufacturing companies (heavy machinery, factories, etc.), o Mining and natural resource companies.
2. Holding & Investment Companies – Companies that primarily hold investments
in real estate, stocks, or other businesses.
3. Distressed or Liquidating Companies – Firms undergoing liquidation, insolvency,
or restructuring, where asset valuation is crucial.
This method is less effective for companies with significant intangible assets (e.g., tech startups, service-based businesses) since it does not fully capture goodwill, intellectual property, or brand value. a) Steps in Asset-Based Valuation:
1. The first step examines all company financial records, reviewing balance sheets
and supporting documentation to create a comprehensive inventory of assets and liabilities, including off-balance sheet items that affect the company's true financial position.
2. Next, the valuation professional examines the balance sheet values, including on￾site verification where necessary, confirming the existence and condition of
assets and the completeness of liabilities. This process identifies discrepancies

between book values and actual values, as assets may have appreciated or depreciated significantly since acquisition.
3. The third step reconstructs the traditional accounting balance sheet into an
economic balance sheet reflecting current market realities. This process adjusts all values from historical costs to fair market values, providing a more accurate picture of the company's worth today.
4. Valuing tangible assets often requires professional expertise in specific asset
classes. Specialists determine current values for physical assets by considering factors such as depreciation, obsolescence, and replacement costs versus liquidation values based on the valuation's purpose.
5. Assessing liabilities requires verifying all debts and obligations, including
accounts payable, loans, leases, and employee benefits. This step also identifies contingent liabilities that could materialize in the future, adjusting values to reflect current interest rates and terms.
6. The sixth step calculates Net Asset Value by subtracting the fair market value of
all liabilities from all assets. Appropriate valuation discounts may be applied for factors such as lack of marketability or minority ownership positions, reflecting practical market realities.

b) Example
For ‘The Sample Company’, asset-based approach gives a fair value of BDT 22,370 million derived from the Balance Sheet as follows:
(BDT in millions)
Particulars 20YY
Current Assets
Cash & Cash Equivalent 381
Accounts Receivable &prepayments 3,561
Inventories 3,691
Total Current Assets 7,633
Total Long Term Investment 5,103
Total Fixed Assets 14,520
TotalAssets 27,256
Current Liabilities
Accounts Payable 7
Liabilities for other expense 1,426
Short Term Bank Loan 1,302
Current Portion of Long Term Debt 540
Total Current Liabilities 3,275
TotalNon-Current Liabilities 1,611
Total Liabilities 4,886
Shareholder'sEquity
Share Capital(BDT 10 each) 3,708
Share Premium 2,035

Reserve 826
Retained Earnings 15,801
Total Shareholder's Equity 22,370
Total Liabilities & Shareholder's Equity 27,256 Net Asset Value of Equity = Total Assets – Total Liabilities = BDT 27,256 M – BDT 4,886 M = BDT 22,370 M Number of Shares Outstanding = 370.8 Million Net Asset Value per share = BDT 22,370 M / 370.8 M = BDT 60.33
2. Market Based Approach
The Market Approach is a fundamental valuation methodology recognized by International Valuation Standards (IVS) that determines the value of a business, business ownership interest, security, or intangible asset by reference to market-based evidence. This approach analyzes prices and relevant information generated by market transactions involving identical or comparable assets, liabilities, or businesses. According to IVS 105 (Valuation Approaches and Methods), the Market Approach provides an indication of value by comparing the subject asset with identical or similar assets for which price information is available. When sufficient, relevant market data exists that reflects transactions of comparable assets, it yields a highly objective representation of fair market value. a) Comparable Public Company Method The Comparable Public Company Method, also known as the Guideline Public Company Method or Relative Valuation Approach, determines value by referencing trading multiples of publicly listed companies operating in the same or similar business sector as the subject entity. This methodology applies appropriate adjustments to account for differences between the subject entity and the comparable companies. The method should be applied only when the target company is sufficiently comparable to the selected publicly traded peers to ensure a meaningful and reliable comparison. b) Implementation Framework

1. Select appropriate publicly traded comparable companies.
2. Calculate and analyze relevant valuation multiples:
   o Enterprise Value to EBITDA (EV/EBITDA) o Enterprise Value to Revenue (EV/Revenue) o Price to Earnings (P/E) o Price to Book Value (P/B) o Price to Sales (P/S)
3. Apply appropriate adjustments:
   o Control premium or minority discount o Liquidity discount for privately held businesses

o Size-specific risk premium (SSRP) o Growth rate differentials o Profitability margin variations
4. Derive an adjusted enterprise value by:
o Accounting for non-operating assets and liabilities o Considering contingent liabilities and off-balance-sheet items o Adjusting for excess or deficit working capital
5. Allocate the enterprise value among various securities and financial instruments
based on:
o Liquidation preferences o Conversion features o Participation rights o Other contractual arrangements c) Peer Group Selection and Market Value Determination The peer group must operate in the same or a closely related industry as the subject company to ensure meaningful comparability. In cases where direct peers or sector￾specific multiples are unavailable, overall broader market multiples may be used, provided they reflect the underlying characteristics and economic drivers of the subject entity. d) Industry-Specific Multiples Selection
1. Financial Service Companies
Price to Book Value of Equity (P/B) method shall be appropriate for financial service companies such as banks, stock brokerage, Merchant Banks, etc. This reflects the importance of capital adequacy and balance sheet strength in these sectors.
2. Technology and Startup Companies
The startups and technological companies are growing globally. These companies in general would incur losses for many years due to big upfront investment needs. Technological companies also do not have much fixed assets, and thus the net asset value approach will also not help in such cases. Price to Sales (P/S) may be applicable for these entities, as it focuses on revenue generation potential rather than current profitability or asset base. e) Methodological Considerations and Best Practices
1. Selecting Appropriate Comparable Entities
In accordance with IVS guidelines, the selection of comparable entities should consider:
 Industry Alignment: Entities operating within the same industry sector with similar value drivers  Business Scale: Entities of comparable size, with appropriate adjustments for scale differences  Product/Service Offering: Entities with similar product or service portfolios

 Geographic Footprint: Entities operating in similar geographic markets  Competitive Positioning: Entities with comparable market positions and competitive dynamics  Financial Performance: Entities with similar profitability metrics, growth trajectories, and risk profiles  Capital Structure: Entities with analogous financing approaches and capital intensity Considering our market size and pattern comparable entities based on industry alignment and product/service offerings should be selected.
2. Multiple Selection and Application
 Select multiples that are most relevant to the subject entity's value drivers  Apply multiples with consideration for the subject entity's specific circumstances  Adjust for differences in expected future performance between the subject entity and comparable companies  Consider using multiple valuation metrics to triangulate a reasonable value range
3. Risk Premium Adjustments
When significant differences exist between the subject entity and comparable companies, especially regarding size and risk profile, apply a specific risk premium (SRP) to account for:
 Size disparities
 Operational differences
 Management depth variations
 Customer concentration differentials
 Product/service diversification disparities  Market position variations f) Strengths of the Market Approach  Empirical Foundation: Based on actual market transactions and observable market data  Objectivity: Relies on factual market evidence rather than subjective forecasts  Concurrency: Reflects current market conditions and investor sentiment  Transparency: Utilizes publicly available information that can be independently verified  Efficiency: Can be implemented with relative speed compared to intrinsic valuation methods g) Limitations of the Market Approach  Comparable Entity Scarcity: Finding truly comparable entities can be challenging, particularly for unique or specialized businesses  Market Conditions: Validity depends on stable market conditions and rational market pricing

 Data Quality: Effectiveness constrained by the availability and reliability of comparable transaction data  Adjustment Subjectivity: Professional judgment required in making adjustments for differences between comparable entities and the subject entity  Market Inefficiencies: May incorporate market mispricing during periods of market irrationality h) Integration with Other Valuation Approaches In accordance with IVS, the Market Approach should ideally be used in conjunction with other valuation methodologies such as:
 Asset-Based Approach: To establish a value floor based on the subject entity's underlying assets  Income Approach: To reconcile market-based value indications with intrinsic value calculations based on expected future economic benefits This integrated approach provides a more comprehensive assessment of value and helps identify potential areas of over or undervaluation in the market. i) Example The fair value of ‘The Sample Company’ is as follows:
(BDT in million)
Particulars
Years
20Y1 20Y2 20Y3
Sales 18,245 19,887 21,876
Cost of Goods Sold 11,586 12,628 13,891
Gross Profit 6,659 7,259 7,985
Administrative Expenses 2,997 3,266 3,593
EBITDA 3,663 3,992 4,392
Depreciation 1,185 1,250 1,320
Other income 120 105 112
EBIT 2,598 2,847 3,184
WPPF 165 178 182
Interest Expenses (income) 320 370 420
EBT 2,113 2,299 2,582
TAX @ 40% 845 920 1,033
Profit After Tax 1,268 1,380 1,549
No. Shares (in millions) 198.5 220.5 370.8
EPS in BDT 6.39 6.26 4.18
Average EPS in BDT fsdfsdfs
5.61
One year month end average P/E value of peer group prior to the MoU for share sale purchase agreement signing date between buyer and seller = 12

Fair Market Value per share = Average EPS * P/E Ratio = BDT 5.61*12 = BDT 67.28
3. Income Based Approach
The Income Approach is a fundamental valuation methodology recognized by the International Valuation Standards (IVS) that determines an asset's value based on its capacity to generate future economic benefits. According to IVS 105 Valuation Approaches and Methods, the Income Approach "provides an indication of value by converting future cash flows to a single current value." Discounted Cash Flow (DCF) method is the most common income based approach and it is also widely recognized in IVS as a robust valuation technique that estimates value by projecting future cash flows and discounting them back to a present value using an appropriate discount rate. Income based approach is particularly suitable for:
 Established and profitable businesses with predictable cash flows  Income-generating real estate properties  Intangible assets that generate identifiable revenue streams  Investments where future economic returns are the primary consideration  Technology, e-commerce, and start-up companies a) Practical Implementation Steps When applying the DCF method to value a company, follow these steps:

1. Identify the historical growth pattern of the industry;
2. Forecast the industry outlook for the next five years through analysis of
   industry trends with opinions from industry experts;
3. Identify the key success factors for the company;
4. Make rational assumptions on sales growth based on irrevocable sales
   contracts (if any), capital expenditure, and working capital management;
5. Forecast future free cash flow based on the assumptions;
6. Calculate present value of future free cash flow to estimate the fair value of the
   firm;
7. Calculate the discount rate using Weighted Average Cost of Capital (WACC)
   based on the latest audited financial statements or the yield rate on 20-year Bangladesh Government Treasury Bond (BGTB) as on the signing date of MoU for share sale-purchase agreement, whichever is higher. If there is no debt for the Target Company, the yield rate on 20-year BGTB as on the signing date of MoU for share sale-purchase agreement shall be used as discount rate;
8. Calculate terminal value by forecasting terminal/perpetual growth rate;
9. Calculate the value of the company using the outlined procedures

b) Key Concepts related to DCF Method

1. Weighted Average Cost of Capital (WACC)
   WACC represents the average rate a company is expected to pay to finance its assets, incorporating both debt and equity sources of capital. It serves as the discount rate in many valuation models. Formula: WACC =

Where:
 Re = Cost of equity (to be supported by reasonable assumption)  Rd = Cost of debt (Cost of debt shall be the long-term bank borrowing rate by the target company)  E = Market value of equity  D = Market value of debt  V = Total market value (E + D)  E/V = Percentage of financing that is equity  D/V = Percentage of financing that is debt  t = Corporate tax rate Example: For a company with:
 Equity value of Tk.60 million (60% of capital structure)  Debt value of Tk.40 million (40% of capital structure)  Cost of equity of 12%  Cost of debt of 5%  Corporate tax rate of 25% WACC = (0.6 × 12%) + (0.4 × 5% × (1-0.25)) = 7.2% + 1.5% = 8.7%
2. Terminal Value
Terminal value represents the value of a business or investment beyond the explicit forecast period. Gordon Growth Model (Perpetuity Growth) is traditionally used to calculate terminal value:
Formula: Terminal Value =

Where:
 FCF(n+1) = Free Cash Flow in the first year after the explicit forecast period  g = Terminal/Perpetual growth rate (typically aligned with long-term GDP or inflation)

Example:
 Final year cash flow: Tk.1,650,000
 Expected growth rate: 3%
 WACC: 10%
 FCF(n+1) = Tk.1,650,000 × 1.03 = Tk.1,699,500  Terminal Value = Tk.1,699,500 / (0.10 - 0.03) = Tk.24,278,571 c) Forecasting Components
1. Revenue Forecasting
According to IVS principles, revenue forecasts should be consistent with historical performance and industry outlook. Common methodologies include:
I. Top-down approach: Starting with market size and estimating market share
II. Bottom-up approach: Building from product/service units and pricing
III. Growth rate method: Applying growth rates to historical revenue
Key considerations:
 Industry trends and market conditions
 Company's competitive position
 Historical growth patterns and sustainability  New product/service introductions  Geographic expansion opportunities  Contractual arrangements
2. Free Cash Flow (FCF) Calculation
Free Cash Flow represents the cash that a company can generate after accounting for operating expenses, capital expenditures, and working capital requirements. Formula: FCF = EBIT × (1 - Tax Rate) + Depreciation - Capital Expenditure - Change in Working Capital Where:
 EBIT = Earnings Before Interest and Taxes
 Tax Rate = Corporate tax rate applicable to the business
3. PPE (Property, Plant and Equipment) Forecasting
Forecasting capital expenditures and PPE is crucial for accurate cash flow projections:
1. Maintenance CapEx: Expenditures required to maintain current operations
2. Growth CapEx: Investments to support business expansion
3. Depreciation: Systematic allocation of asset costs over useful life

4. Estimating Terminal/Perpetual Growth Rate
The perpetual growth rate in the terminal value calculation (Gordon Growth Model) represents the rate at which a company’s free cash flows or dividends are expected to grow indefinitely beyond the forecast period. It is a critical input in calculating the terminal value, which often constitutes a significant portion of a company's total valuation. The growth rate should be realistic and generally not exceed the long-term growth rate of the economy or the inflation rate. Overestimating the perpetual growth rate can lead to material overvaluation, while underestimating it can suppress the terminal value. Therefore, careful judgment is essential when selecting this rate to ensure the valuation remains grounded in economic reality.
5. Determining Enterprise and Equity Value
After calculating the present value of projected cash flows and terminal value, one can determine:
Enterprise Value = PV of FCF during forecast period + PV of Terminal Value Equity Value = Enterprise Value - Net Debt Where:
 Net Debt = Interest-bearing debt (Non-current and Current) - Cash & Cash Equivalents Fair value per share = Fair value of Equity / Number of outstanding shares d) Approaches in Forecasting:
 Percentage of revenue
 Detailed capital expenditure plans
 Replacement cycles
 Industry benchmarks e) Example
(BDT in million)
Particulars
Historical Forecasted
20Y0 20Y1 20Y2 20Y3 20Y4 20Y5 20Y6 20Y7 20Y8 20Y9 EBIT*(1-TAX) (1) 1,278 1,458 1,559 1,708 1,910 2,025 2,146 2,275 2,412 2,556 Depreciation (2) 1,070 1,050 1,185 1,250 1,302 1,390 1,445 1,480 Capital Expenditure (3) 900 960 1,120 1,240 1,375 1,480 1,530 1,570 1,570 1,585 Change in working capital (4) 38 40 42 43 45 47 48 50 52 53 Net Cash Flow (1+2-3-4) (5) 1,410 1,508 1,582 1,675 1,792 1,888 2,013 2,135 2,270 2,398 Free Cash Flow (FCF) (6) 1,410 1,508 1,582 1,675 1,792 1,888 2,013 2,135 2,270 2,398 Terminal Free cash flow - - - - - - - - - 2,398 Discounted Free Cash Flow - - - - -
1678.22 1590.52 1499.48 1417.15 1330.72

Discount Rate = 12.50% (WACC which is higher than the yield rate of 20-year BGTB has been applied) Terminal value (TV) = Terminal Free cash flow

= BDT. 2,398

[6% estimated as terminal growth rate(g)]
= BDT. 39,105.85
Enterprise value

Enterprise value = BDT. 29,217.06
Net Debt =Interest bearing debt (Non-current and Current)-Cash & Cash Equivalents = BDT. 3,453-381 = BDT. 3,072 Fair value of Equity = Enterprise value- Net Debt = BDT. 29,217.06-3,072 = BDT. 26,145.06 Fair value per share = Fair value of Equity/no. of outstanding shares = BDT 26,145.06/370.8 = BDT 70.51

f) Best Practices and Limitations

1. Best Practices
    Ensure that all inputs—such as revenue growth, profit margins, capital expenditures, and working capital—are based on sound logic and market evidence. Avoid overly optimistic projections. Look out for unrealistic margin expansions that are not supported by clear operational improvements, as these may signal understated expenses.  Test the valuation’s sensitivity to changes in critical inputs such as discount rates, terminal growth rates, and cash flow forecasts. This helps assess risk and the robustness of the valuation.  Clearly outline all assumptions, sources of data, and the rationale behind selected methods. This transparency supports credibility and facilitates review or audit.  Benchmark the DCF results against other valuation methods, such as comparable company analysis or precedent transactions, to validate findings and identify outliers.  Incorporate business model strength, management quality, competitive positioning, regulatory environment, and market trends to complement numerical outcomes.  The difference between forecasted growth rates and historical growth rates should be reasonable and justifiable based on economic and operational factors.
2. Limitations
    Small changes in key assumptions such as revenue growth, margins, or discount rates can lead to large swings in valuation. This makes it critical to scrutinize inputs for accuracy and realism.  The effectiveness of DCF depends on the quality of long-term financial projections, which are inherently uncertain. Particular caution is needed in evaluating future profit margins unrealistic margin expansions without operational improvements may suggest understated expenses, leading to inflated valuations.  For companies without stable cash flows or those undergoing significant changes, DCF may not reflect their potential accurately. Alternative methods may be more appropriate in such cases.  The choice of discount rate has a significant impact on the valuation and involves subjective judgment around risk and capital structure.  Due to the inherent subjectivity in assumptions and projections, DCF should be used alongside other valuation methods (e.g., market comparables, asset-based approaches) to arrive at a balanced and credible conclusion.

Annexure-B
Required documents of the target company to be submitted with application
1. Share valuation report supported by audited reports and financial statements
of the target company for immediate past 5 years;
2. Memorandum of Understanding (MoU) for share sale-purchase agreement;
3. Applicable multiples ( such as P/E, P/B, P/S), calculated as the average of month￾end values of the peer group over the twelve months preceding the execution of
the MoU or share sale- purchase agreement, excluding outlier ratios;
4. The Weighted Average Cost of Capital (WACC) with detailed calculations or
the yield rate on 20-year BGTB as on the date of MoU for share sale-purchase agreement with supporting documents;
5. Statement of overdue export proceeds and overdue bill of entry, in case the
target company is involved in export-import business;
6. Income tax computation submitted to National Board of Revenue (NBR) along
with the income tax return;
7. Tax clearance certificate;
8. CIB Report;
9. Board Resolution of the Company in favor of transfer of shares.
Additional documents to be submitted if reporting regarding issuance/transfer of share is not done yet:
1. Certificate of Incorporation;
2. Memorandum & Articles of Association;
3. Registration with Bangladesh Investment Development Authority (BIDA)
(previously Board of Investment)/Bangladesh Export Processing Zones Authority(BEPZA)/Bangladesh Economic Zones Authority(BEZA)/Bangladesh Hi￾Tech Park Authority (BHTPA);
4. Annual Summary of share Capital and list of shareholders directors (Schedule-‘X’);
5. Particulars of the Directors, Manager and Managing Agents and of any change
therein (Form XII);
6. Return of Allotment (Form –XV);
7. Instrument of Transfer of shares (Form –117);
8. Encashment Certificate in support of shares issued or transferred shares against
freely convertible foreign exchange;
9. Authenticated copies of import permit, invoice, bill of lading or air way bill and
bill of entry for the issuance or transfer of shares against imported capital machinery, along with documents evidencing that payment for such import was made from abroad.
10. Board Resolution of the Company in favor of transfer of shares.