Asset Based Valuation

Question 1

Defined by the industry as transactions that would yield future economic benefits as a result of past transactions.

Answer 1

Assets

Question 2

It is highly dependent on the value that the asset will generate from now until the future.

Answer 2

Value of invested opportunities

Question 3

Investments that started from scratch.

Answer 3

Green Field Investments

Question 5

Investments that are already in the going concern state; Opportunities that can either be partially or fully operational.

Answer 5

Brown Field Investments

Question 6

Businesses that has a long term to infinite operational period.

Answer 6

Going Concern Business Opportunities

Question 7

They suggest that risk management principles must observed in doing business and determining its value.

Answer 7

Committee of Sponsoring Organization of the Treadway Commision (COSO)

Question 8

According to COSO, the benefits of having a sound Enterprise-wide Risk Management allows the company to:

Answer 8

1. Increase the opportunities.
2. Facilitate management and identification of the risk factors that affect the business.
3. Identify or create cost-efficient opportunities.
4. Manage performance variability.
5. Improve management and distribution of resources across the enterprise.
6. Make the business more resilient to abrupt changes.

Question 9

This approach only focuses on the current and historical value of the assets and will disregard the value it can generate in the future and may not fully represent the true value of the assets.

Answer 9

Asset-based valuation

Question 10

Information required for asset-based valuation:

Answer 10

The financing structure
Classes of equity
Other sources of funding

Question 11

The popular methods used to determine the value using assets as its bases:

Answer 11

1. Book Value Method
2. Replacement Value Method
3. Reproduction Value Method
4. Liquidation Value Method

Question 12

The value recorded in the accounting records of a company.

Answer 12

Book Value Method

Question 13

This method uses the asset values as presented on the statement of financial position less the liabilities.

Answer 13

Book Value Method

Question 14

This method is highly dependent on the value of the assets as declared in the audited financial statements, particularly the balance sheet or the statement of financial position.

Answer 14

Book Value Method

Question 15

The assets are required to be categorized into 2.

Answer 15

Current and Non-current assets.

Question 16

Assets that are expected to be realized within the company’s normal operating cycle, expected to be realized within 12 months after these transactions were reported, or held primary for the purpose of trading.

Answer 16

Current Assets

Question 17

Assets wherein benefits can be realized in more than 12 months.

Answer 17

Non-current Assets

Question 18

The liabilities are required to be categorized into 2.

Answer 18

Current Liabilities and Non-current Liabilities

Question 19

Liabilities that are expected to be settled within the entity’s normal operating cycle, due to be settled within 12 months, held for the purpose of trading or if the company does not have ability to settle beyond 12 months.

Answer 19

Current Liabilities

Question 20

Liabilities which are due to be settled longer than 12 months.

Answer 20

Non-current Liabilities

Question 21

The method where the value of the enterprise is based on the book value of the assets less all non-equity claims against it.

Answer 21

Book Value Method

Question 22

Formula of the Book Value Method

Answer 22

Net Book Value of Assets = (Total Assets - Total Liabilities) / Number of Outstanding Shares

Question 23

This method provides a more transparent view on firm value and is more verifiable since this is based in the figures reflected in the financial statements.

Answer 23

Book Value Method

Question 24

This method only reflects historical value and might not reflect the real value of the business now.

Answer 24

Book Value Method

Question 25

The cost of similar assets that have the nearest equivalent value as of the valuation date.

Answer 25

Replacement Cost

Question 26

Under this method, the value of the individual assets shall be adjusted to reflect the relative value or cost equivalent to replace that asset.

Answer 26

Replacement Value Method

Question 27

What are the factors that affect the replacement value of an asset?

Answer 27

1. Age of the asset 2. Size of the assets 3. Competitive advantage of the asset

Question 28

This factor will enable the valuator to determine the costs related in order to upkeep a similarly aged asset and whether assets with similar engineering design are still available in the market.

Answer 28

Age of the asset

Question 29

This factor is important for fixed assets particularly real property where assets of the similar size will be compared.

Answer 29

Size of the assets

Question 30

Assets which have distinct characteristics are hard to replace. However, the characteristics and capabilities of the distinct asset might be found in similar, separate assets.

Answer 30

Competitive advantage of the asset

Question 31

Formula of the Replacement Value Method

Answer 31

Replacement Value per share = (Net book Value +/- Replacement Adjustment) / Outstanding Shares

Question 32

An estimate of cost of reproducing, creating, developing or manufacturing a simiar asset.

Answer 32

Reproduction Value

Question 33

This method adjusts the assets values as presented on the statement of financial position less liabilities.

Answer 33

Replacement Value Method

Question 34

This method requires reproduction cost analysis which is internally done by companies especially if the assets are internally developed.

Answer 34

Reproduction Value Method

Question 35

This method is useful when calculating the value of new or start-up businesses, ventures that use specialized equipment or assets, firms that are heavily dependent on intangible assets and those with limited market information.

Answer 35

Reproduction Value Method

Question 36

This method adjusts the asset values and will consider the value when the asset is rebuilt.

Answer 36

Reproduction Value Method

Question 37

Steps in determining the equity value using the reproduction value method:

Answer 37

1. Conduct reproduction cost analysis on all assets. 2. Adjust the book values to reproduction cost values (similar to replacement value). 3. Apply the replacement value formula using the figures calculated in the preceding step.

Question 38

This method is an equity valuation approach that considers the salvage value as the value of the asset.

Answer 38

Liquidation Value Method

Question 39

This method assumes that the reasonable value for the company to be purchased is the amount which the investors will realize in the end of its life or the value of the when it is terminated.

Answer 39

Liquidation Value Method

Question 40

This method presents the value based on its salvage value.

Answer 40

Liquidation Value Method