Whether you want to sell a company, buy one, or invest in one, business valuation is crucial. However, there are multiple valuation approaches. We previously discussed the income-based approach, and today we’re gonna talk about another! The asset based valuation approach, as the name suggests, tackles the company’s net asset value. Don’t worry though, we’re gonna tackle all that right now and discuss some of its methods. So, let’s jump in, shall we?
How Does the Asset Based Valuation Approach Work?
So, the asset based valuation approach is all about a company’s net asset value. And you can calculate the net asset value by subtracting the total liabilities from total assets. So, from the net asset value, experts can deduce the value of a company. Now here’s the kicker; this approach has a lot of room for interpretation. You see, it remains up to the person conducting the valuation to choose what to consider as liabilities and assets.
Asset Based Approach Methods
Book Value
First on our list today is the book value method. In this method, experts calculate the value of a company using its balance sheet. They simply subtract the total liabilities from the total assets. It’s a pretty simple and straightforward process, however it doesn’t take into consideration intangible assets like brand value, intellectual property, etc…
Liquidation Value
As the name suggests, the value of a company is calculated here based on how much it’s worth if all of its assets get liquidated. This asset based valuation method is important in the case of an abrupt sale or bankruptcy. The value of the company’s assets are calculated based on their current market value in case of an immediate sale. So basically, this method takes the worst-case scenario and values the company accordingly.
Replacement Cost
What you should know here is that this method is best used for companies that are heavy on physical assets. For example, real estate or companies in the manufacturing industry can use this asset based valuation method. So here, experts calculate the value of a company based on how much money it would need to replace those physical assets. Naturally, this valuation depends on the current market value of the items. So, the result will depend on the economic state big time!
Wanna Save Yourself the Trouble of Asset Based Valuation?
Regardless of the reason you need to go into business valuation, it doesn’t have to be a headache. Why, you ask? Well, because you can simply hand over that task to experts from an outside firm like Noraal! They can handle your valuation from A to Z and give you all the data you need. So, time to say goodbye to financial hassles and check out what Noraal has to offer! Sounds like a plan, doesn’t it?