The Art of Business Valuation

CHAPTER 7Asset Approaches

The asset approaches look at the value of the assets of the company being valued. This is often used to determine a “floor value” which could otherwise be thought of as a “high liquidation value,” when a company is not performing well and may face dissolution. In most cases, business valuators are not hired to determine the asset value of small or very small businesses. Therefore, a brief discussion will be given here for those cases when the asset method turns out to be all there is left with a small or very small company.

It is suggested that this chapter be reviewed along with the Balance Sheet sections of Chapter 11, Accounting Issues with Small and Very Small Businesses. Much of the material in these two chapters goes hand in hand.

A simple, but typical Balance Sheet Adjustment Worksheet is shown as Figure 7.1. Note that the first series of columns is an estimate of the current market value of the assets. The second series of columns is a further markdown to estimate the liquidation value of the assets. More on estimating for liquidation values is addressed below in the section Fixed Assets.

Date
Preparer	Book	Market Val	Market	Liquidation	Liquidation
Value	Adjustment	Value	Adjustment	Value
Current Assets
1	Cash	$50,000	$50,000	$50,000
2	Accounts Receivable	$75,000	($25,000)	$50,000	($5,000)	$45,000
3	Inventory	$50,000	($10,000)	$40,000	($20,000)	$20,000
4	Other Current Assets	$0	$0	$0
Long-Term Assets ...