Overview of Asset Based Approaches of Business Valuation
There are several ways to determine the value of a particular business enterprise. One of them is asset based approach of business valuation. The others are the income approaches and the market approaches.
Functioning of Asset Based Approaches of Business Valuation
The asset based approaches of business valuation functions on the basis of the principle of substitution. In the context of asset based approaches of business valuation it is normally assumed that an intelligent investor would make investments for assets that are of any use to him.
The asset based approaches of business valuation assume that the investors are more likely to pay what they think is the right price of any asset.
The asset based approaches of business valuation work in a way that is different from the other approaches of business valuation like the income based approaches of business valuation for example.
Adjusted Net Book Value Method
The adjusted net book value method is one of the various asset based approaches of business valuation. It works in a different method from the income based approaches in the way that it is more objective. In most cases it is seen that the assets are being covered in the book. The acquisition value of the assets is considered in this case. If there is a scope of excluding the expenditure incurred for the depreciation, it is done.
It is important for these assets to adopt a fair market value if and when possible. It is usually not possible to determine the value of assets of a company like its goodwill, as they are not assets in the actual sense of it.
Application of Adjusted Net Book Value Method
The Adjusted Net Book Value method is mostly used in cases where the company is selling off its assets in order to pay off its debts. It is also used in cases where there is a chance that liquidation might happen.
If the company’s income is less than or equal to its assets then the Adjusted Net Book Value method can be used.
Last Updated on : 27th June 2013