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Asset-Based Approach

The asset-based approach is a method of valuing a business or an asset by determining the value of its underlying assets, minus any liabilities. This approach focuses on the net asset value (NAV) of a company, which is calculated by adding up the market value of all its assets and subtracting its liabilities. The asset-based approach is particularly useful for valuing companies with significant tangible assets, such as real estate or manufacturing businesses, and is often used in liquidation scenarios or when the business is not generating sufficient income to be valued based on earnings.

Example

A real estate company might be valued using the asset-based approach by calculating the total market value of its properties and then subtracting any outstanding mortgages or loans.

Key points

• A valuation method that focuses on the value of a company’s assets minus liabilities.

• Useful for valuing companies with significant tangible assets.

• Often used in liquidation scenarios or when income-based valuation is not suitable.

Quick Answers to Curious Questions

It is used when valuing companies with significant tangible assets, in liquidation scenarios, or when the company is not generating sufficient income to be valued based on earnings.

It focuses on the net asset value (NAV) of a company, which is the value of its assets minus its liabilities.

NAV is calculated by adding up the market value of all the company’s assets and then subtracting its liabilities.