Asset Based Valuation
Download as PPTX, PDF0 likes1,590 views
The document discusses three valuation methods: asset based, income based, and market based. The asset based approach values a company based on its assets and liabilities from the balance sheet. This can provide two potential values: book value, using carrying values, or adjusted net asset value, adjusting assets and liabilities to fair market values. The asset based approach assumes the company will liquidate and the residual value after selling assets and paying liabilities is the company's value.
Asset Based Valuation
- 1. Valuation Methods Asset based approach
- 2. strategyrev.com Recapitulating the Valuation methods Asset based method Income based approach Market based approach When you employ the Asset based technique of valuation, it essentially throws up the following 2 potential values for a specific Company 1. Book Value 2. Adjusted Net Asset Value https://www.youtube.com/watch?v=fesDRsJ6hHU
- 3. strategyrev.com What is a “Balance Sheet”? A good starting point for asset based valuation is the balance sheet; this is where you start pulling the numbers out Balance sheet has information about the assets, liabilities and owners equity of a Company at a specific point of time Assets are the resources owned by the firm; we can classify them as tangible and intangible assets or alternatively as fixed and current assets Examples of assets are: plant, machinery, building, inventory (tangible assets); goodwill, patents etc. (intangible assets) – WHAT YOU OWN Liabilities are - what the business owes to an individual, another business or financial institution like a bank (loans, creditors etc.) – WHAT YOU OWE EQUITY is what you really own (Assets – liabilities)
- 4. strategyrev.com Definition(s) in the asset based approach of valuation Asset valuation is the process of determining the fair market value of an asset Book Value - difference between the assets and liabilities of a Company and equivalent to the carrying value on its balance sheet Adjusted Net Asset Value – used to value business when the assets and liabilities are adjusted to its fair “market value”; you need to get a market appraisal done Underlying assumption in the Asset Based Valuation technique The company would be liquidated i.e. it will sell off all its assets and pay of all the liabilities and the residual value that we get is the “VALUE OF THE COMPANY” Note: some of the assets that you see on the balance sheet are recorded on historical costs and the actual market price may be different from the balance sheet value
- 5. strategyrev.com How does the asset based valuation work? - Book Value Prashant Nair Pvt Ltd Assets Crs Cash 10 Inventory 5 Plant & machines 30 Building 20 Land 50 Liabilities Crs Short term loan 5 Long term loan 25 Others 5 minus Total 125 35 90 Crs Book Value of the company You value based on the assets that are sitting on the balance sheet; you take each asset assign a value and put the together
- 6. strategyrev.com How does the asset based valuation work? – Net asset Prashant Nair Pvt Ltd Assets Crs Cash 10 Inventory 5 Plant & machines 30 Building 20 Land 100 Liabilities Crs Short term loan 5 Long term loan 25 Others 5 minus Total 165 35 130 Crs Book Value of the company Assess how much value would the assets fetch if it were sold in the market today at the market price