Asset Based or Cost Based Valuation Methods - Explained
What are Asset-based and Cost-Based Valuation Methods?
Written by J. Mance Gordon
Updated at April 22nd, 2024
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What is Asset-Based Valuation?
The asset-based approach focuses on the valuation of the firms assets or, in some instances, the cost of replacing those assets. This approach puts emphasis on the total assets and liabilities of the firm. It therefor reflects a whole-firm valuation, rather than simply an equity valuation.
To identify the equity value of the firm, one subtracts the market value of any debt held by the company. Determining the valuation may also require adjustment for the intangible assets of the firm that may be incapable of replacement. Asset-based valuation has many variables based upon the purpose or type of company being valued.
Common asset-based valuations include: Book Value, Replacement Value, and Liquidation Value. Each of these methods is subsequent lectures.