These approaches value a business based on the value of its assets and liabilities (Total Assets - Total Liabilities = Value).
Net Asset Accumulation Method simply collects the individual values of the underlying tangible assets on an in‐place and in‐use basis, excluding goodwill unless it’s absent. The sum of the individual assets is the value of the business. It does not account for any goodwill the business may have as a going concern.
Adjusted Book Value:
Formula: Value = Total Assets − Total Liabilities
Explanation: Adjust the book value of assets and liabilities to their fair market value. This approach is often used for asset-heavy businesses.
Liquidation Value:
Formula: Estimated based on the amount that can be obtained by selling the assets individually in a liquidation scenario.
Explanation: Estimates the net amount that would be received if all assets were sold off and liabilities settled, often used when a business is in financial distress.
Replacement Cost:
Formula: Based on the cost to replace or reproduce the business’s assets with similar new ones, minus depreciation.
Explanation: Determines the cost to replace assets or start a similar business from scratch, considering depreciation and obsolescence.