An asset valuation (more commonly known as the asset approach) looks at the value of the assets of the company being valued. This is often used to determine a “floor value” which could otherwise be thought of as a “high liquidation value,” when an Amarillo company is not performing well and may face dissolution. In most cases, business valuators are not hired to determine the asset value of a small or very small Amarillo business. However, an asset valuation is necessary when it turns out to be all there is left with a small or very small company.

The starting point in an asset valuation for an Amarillo company is to determine if the balance sheet is complete. Assets and liabilities may not have been put on the books because they were not required to be or because of an error. Sometimes, when companies get into trouble, owners or employees will hide liabilities. In addition, there may be contingent liabilities, guarantees, and other obligations that may come into play, particularly as a company approaches insolvency. In any asset valuation, start by making sure you know what the assets and liabilities of the firm are.

Rarely

Rarely, but occasionally, the asset method will produce a larger value than the income or market method. Some Amarillo companies are very conservative and keep a lot of cash on hand. Others may have large receivables. While high asset valuation is unlikely to last, as of the valuation date, even after marketability discounts, this value could be above the long-term operating earnings value of the company.

Hard Assets

If an Amarillo company is hard asset or real estate heavy and the value of the assets is likely to drive the value found, then it is important to rely upon equipment or real estate appraisers. If, like many small and very small companies in the Amarillo area, the asset valuation is nominal, then estimating an adjustment to market may be appropriate. If doing an asset valuation for exit planning or for a transaction, find out what assets are going to remain with the conveyed company. Ask yourself if the “new” vehicle is being conveyed. Sometimes significant assets have been purchased since the last tax return and are not shown on the list provided. 

In most cases, when developing an asset valuation, the balance sheet shows the purchase price and the depreciated value of the fixed assets. Proper valuation theory is that the assets should be marked to market to reflect what they are really worth at the valuation date. There is usually more than one market price that can be the basis of the adjustment. Market values using the asset valuation approach include:

• In place value, which is a value for the total assemblage of assets that may be higher than the individual assets. Often this may apply to a productive industrial operation where there are high set-up and fit-out costs.
• Fair market value assumes a reasonable period to trade and no compulsion. It is often viewed as dealership buy-sell-type pricing.
• Orderly liquidations, which assume a compulsion to sell but there is still some sales period.
• The forced liquidation value is the auction value with a set limited timeframe.

Always specify the standard of value you are using to restate assets in your Amarillo asset valuation. For a typical small Amarillo business with very little equipment, the valuator can review the equipment list. Often the best list for an asset valuation is part of the depreciation schedule. Obtain an indication of wear such as mileage for vehicles and estimate an adjustment. Computers, office equipment, phone systems, and the like often have no resale value. Racking, forklifts, trucks, and construction equipment have a value that decreases in recessions and increases when the economy is strong. 

When performing an asset valuation for a small Amarillo company, consider excess assets. Excess assets under other methods should be treated like any other asset under the asset valuation, as all assets are assumed to be sold off.

Intangibles

The primary problem with performing an asset valuation for an Amarillo business is estimating the value of intangible assets. For small and very small businesses, intangible assets are embedded in the indicated value and shown in goodwill. Goodwill for business valuation is the simple mathematical calculation of subtracting all identifiable tangible assets from the total found value of the Amarillo business. That remainder is goodwill. 

Liabilities

When performing an asset valuation, it is generally assumed that liabilities will be paid off. When Amarillo companies get into trouble, this is not always the case. In some cases, accounts payable, notes to private parties, and rarely, even notes to institutional type investors and banks, are discounted.

Owners’ Equity

Owners’ equity is the net worth of the business and the ending value in the asset valuation. Namely, it is the total of all the adjusted assets less than all the adjusted liabilities. Professional judgment needs to be used depending on the fact and standards as to how to use this estimate in the overall asset valuation. As mentioned earlier, the asset valuation method produces a “floor value” or a minimum value for most operating companies in Amarillo. It is generally a good starting point, but not the final value in most cases.