CIMA F3 Syllabus D. Business valuation - Asset Based Valuations - Notes ^{3 / 15}

When is it a good technique then - cow face?

oooh cheeky, anywhere here goes..

1. When looking to asset strip the company

2. As a minimum price

3. When valuing Investment companies

NB. If a company is quoted on a market AND is a going concern then the minimum valuation is..

Market price + Acquisition premium

There are different ways of measuring assets:

1. Book Values

   This is poor as it uses Historic costs and not up to date values. 

   It can give a ball park figure though

2. Net Realisable Value

   This would represent the minimum value of a private company - as it is what the assets alone could be sold for. 

   However, even here there is the problem of needing to sell quickly may mean the NRV might be difficult to value
   Another weakness of this is that this gives a value for the assets when SOLD not when IN USE. 

   Therefore, not good for a situation of partial disposal where business and hence assets will carry on

3. Replacement Cost

   Here the valuation difficult - need similar aged assets value. 

   It also ignores goodwill

If assets are to be sold on an ongoing basis

Illustration

Loan is redeemable at 2% premium
MV of property is $30,000 more than carrying value

What is the value of an 80% holding using assets basis?

Solution

X 80% = 382,400