Chapter 8

Asset Approach

The asset approach is defined in the International Glossary of Business Valuation Terms as “a general way of determining a value indication of a business, business ownership interest, or security using one or more methods based on the value of the assets net of liabilities.”1

In the valuation of a business or business enterprise, the asset approach presents the value of all the tangible and intangible assets and liabilities of the company. As typically used, this approach starts with a book basis balance sheet as close as possible to the valuation date and restates the assets and liabilities, including those that are unrecorded, to fair value (financial reporting) or fair market value (tax and other purposes). In this chapter, either standard will be referred to by the term “fair market value” (see Chapter 1 for definitions).

On the surface, the asset approach seems to be simple, but deceptively so. The application of this approach introduces a number of complicating factors that must be addressed before a satisfactory analysis is concluded.


Even as we evolve to fair value accounting, accounting is still generally historical cost-based. At any point in time, a company’s balance sheet represents a number of accounts stated on the basis of cost. Presenting financial statements on a cost basis brings about a conceptual conflict:

Traditionally, cost (or more precisely historical cost) is assumed to be the proper basis of accounting for assets ...

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