Business: asset valuation methods

Published on : 31 December 20193 min reading time

Asset value is the primary valuation of a business that takes into account the market value (which can be withdrawn by selling it), the net asset value (market value minus a discount to make a quick sale) and the use value (corresponds to the pleasure or convenience that an asset brings). So the asset valuation is used to determine the price of a business by adding the actual price of all the assets that make it up.

What is the wealth method?

Wealth valuation is an easy method. It is based on a simple algebraic sum of the assets and liabilities vis-à-vis third parties of the company. In its entirety, the company looks like a pile of assets and debts whose value just needs to be defined independently. A valuation of a company based on patrimonial methods can be applied in the following cases: holding companies, factories, distribution, trade and all property companies. IT or service companies as well as start-ups are excluded. So for the companies that are privileged, the patrimonial method is a valuable tool for measuring the history of the company and a means of determining a minimum threshold for disposal.

Asset and liability methods based on the balance sheet

These methods are relevant for the asset valuation of companies that have significant assets and whose profitability is not very important, such as a real estate company or an industry. However, they will be less relevant for service activities, for example. There are two different methods for valuing assets:

– Adjusted net book assets (ANCC)

This consists of taking only the real values of assets and liabilities by eliminating the non-values (formation expenses) and restating the items by taking into account their market value.

ANCC = actual assets – actual liabilities

– Revalued net book value (RNAV)

This method takes the ANCC and adds the revaluation of the goodwill called good will (GW= (RE- (i x capital employed)), it is established as follows:

Value of the company = ANCC + GW

Determining the asset value of a company

In order to have a consistent and realistic value, it is necessary to clearly define the context of a company’s valuation. You need to know whether you are in an asset-by-asset or going concern process. If it is not a going concern, special attention should be paid to the tax implications of the various disposals. Therefore, when assets are sold, they will show capital gains or losses that will allow the value of the business to be adjusted.

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