The Asset Accumulation Appraisal Method is used primarily for real estate holding companies, oil & gas companies, or other asset-heavy companies with earnings that do not support a value higher than the tangible assets. This method is sometimes used with profitable companies to represent the low end of the range of indications of value. This method also sets the bar that valuation methods based on earnings must overcome to show proof of goodwill value.
The Asset Accumulation Appraisal Method is the process for computing the market value of a business‘s tangible and intangible assets and liabilities. This process starts with the sum of all tangible assets as reflected on the company balance sheet. A discount or step up is then applied to ascertain what it would cost to obtain comparable assets in a similar condition today. To determine the market value of comparable tangible assets, you can contact used equipment dealers and/or auctioneers.
From there, the sum of the business‘s tangible liabilities is deducted from the adjusted asset value. Then to the working value, you would add of any off-balance sheet or intangible assets, or in other words, the assets that wouldn’t normally appear on the balance sheet. Off-Balance Sheet/Intangible assets include:
- Trade/Service Marks
- Customer List
- Licensing, Royalty, or Other Standing Agreements
- Use rights (e.g., drilling, water, or mineral)
- Service Contracts
- Trade Secrets
- Patented Technologies
Finally, you deduct a value for any contingent liabilities such as pending legal action judgments and costs associated with regulatory compliance to come up with the final valuation.
Using the Asset Accumulation Appraisal Method, what is your business or target acquisition worth?
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