Asset-Based Valuation

Asset-based valuation asks what a company's net assets are worth. It starts with the balance sheet and adjusts the recorded values of assets and liabilities to reflect their current market values.

There are two main versions. A going-concern approach values assets assuming the business continues to operate. A liquidation approach values assets based on what they would raise if sold, often quickly, which usually gives a lower figure.

For example, a property company owns buildings recorded at 300 million on its balance sheet, but recently valued at 400 million. With debt of 150 million, its adjusted net asset value is 250 million.

Asset-based valuation is most useful for businesses whose value lies mainly in their tangible assets, such as property companies, investment holding companies, natural resource businesses and companies facing liquidation. It is less useful for businesses whose value depends on intangible assets that may not appear on the balance sheet, such as brands, customer relationships and intellectual property. For technology or service companies, earnings-based or cash flow methods usually provide a better picture.