Assets-Based Valuation Methods

Matori

ACCA P4考试：Assets-Based Valuation Methods
Net Book Value (NBV)
Simply uses the "balance sheet" equation:
Equity = assets – liabilities
Problems and weaknesses of this method include:
Statement of financial position (balance sheet) values are often based on historical cost rather than market values.
Net book value (also called carrying amount) of assets depends on depreciation/ amortisation policies.
Many key assets are not recorded on the balance sheet (e.g. internally generated goodwill).
Net Realisable Value (NRV)
This estimates the liquidation value of the business:
Equity = estimated net realisable value of assets - liabilities
This may represent the minimum price that might be acceptable to the present owner of the business.
Problems and weaknesses of this method include:
Estimating the NRV of assets for which there is no active market (e.g. a specialist item of equipment).
It ignores unrecorded assets (e.g. internally-generated goodwill).
Replacement Cost
This can be viewed as the cost of setting up an identical business from nothing
Equity = estimated depreciated replacement cost of net assets
This may represent the maximum price a buyer might be prepared to pay.
Problems and weaknesses of this method include:
Technological change means it is often difficult to find comparable assets for the purposes of valuation;
It ignores unrecorded assets.
" Book Value-Plus"
Even using replacement cost suffers the problem of ignoring unrecorded assets (e.g. goodwill).
A possible solution is to use one the of formulae below:
Equity value = replacement cost of net assets + (m