Commentary: On the Money - Valuing Businesses Under the Asset Approach

Summary

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In previous articles, we have discussed three recognized approaches to valuing a business: the income approach, the asset approach and the market approach. This column will explore in more detail the asset approach, which relies upon the theory that the value of a business can be measured by the cost of reproducing or replacing its assets.

The asset approach is a method that may be known by several names, including the net asset value method, the adjusted net asset value method, and the adjusted book value method. As each of these names suggests, this method is based on the premise that the owner's equity in a business is equal to the sum of the value of a business' assets, minus its liabilities.

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Commentary: On the Money - Valuing Businesses Under the Asset Approach

This is reminiscent of one of the basic equations of accounting theory taught in the first class of Accounting 101: Assets - Liabilities = Equity or book value.

How simple business valuations would be if a mere examination of the com...

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