INTRODUCTION
Asset-Based Valuation
Asset-Based Valuation (ABV) is an approach used to gauge a
company's worth by assessing the aggregate value of its assets
while accounting for any debts or liabilities.
Essentially, the core concept of ABV revolves around estimating a
company's value by totaling the worth of its assets, which include
tangible assets like real estate, machinery, and inventory, along
with intangible assets such as patents, trademarks, and goodwill.
Analysts conducting an ABV gather information about these
assets, estimate their market values, and then deduct any
liabilities or debts to determine the net asset value.
Asset Valuation Approaches
Since the core of an asset-based valuation is determining the underlying value of the assets (subtracted
from liabilities) it is important to determine how the assets will be valued in the first place. There are
multiple ways to value assets:
1. GAAP or balance sheet value is the balance of the assets as displayed on a company’s balance sheet
including fixed assets net of depreciation. This is the most common approach to calculating net book value
but may understate value.
2. Replacement value is what it would cost to replace the assets in hand and often requires a formal
appraisal in order to determine. Replacement value is often the highest value assigned to assets.
3. Fair market value (FMV) of assets is often a better proxy for true asset value because FMV generally
reflects the earning potential of the assets. Orderly liquidation value may be a more appropriate FMV if a
business is not producing positive earnings.
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