07 Aug Net Asset Value Method: When to Use it in Business Valuations
Consider using the Net Asset Value Method for valuing a business when:
- The company holds significant tangible assets, and there are no significant intangible assets.
- There is little or no value added 10 the company’s products or services from labor.
- The balance sheet reflects all the company’s tangible assets; that Is, the company has not expensed any tangible assets that continue to benefit the company.
- The company is expected to continue as a going concern.·
- The ownership Interest being valued is either a controlling interest or has the ability to cause the sale of the company’s assets.·
- The company has no established earnings history or a volatile earnings/cash now history.
- A significant portion of the company’s assets are composed of liquid assets or other investments (such as marketable securities, real estate investments, mineral rights).
- The business depends heavily on competitive contract bids, and there is no consistent, predictable customer base.
- It is relatively easy to enter the company’s industry (for example, small machine shops and retail shops).
- The company is a start-up business.