Los 46.m Flashcards
(9 cards)
What is the core idea behind asset-based valuation models?
Equity value equals the market (fair) value of assets minus the market (fair) value of liabilities.
Why are book values typically adjusted in asset-based valuations?
Book values reflect historical costs, while market values reflect current worth. They are often different.
What are some approaches to valuing assets in asset-based models?
Depreciated values, inflation-adjusted depreciated values, or estimated replacement values.
When are asset-based models most reliable?
When a firm has primarily tangible short-term assets, readily marketable assets (e.g., financial or natural resource firms), or is being liquidated.
What is a key limitation of asset-based models, especially for firms with significant intangibles?
Difficulty in valuing intangible assets like brand reputation or customer relationships. They may provide a “floor” value in these cases.
How are asset-based models often used in conjunction with other valuation methods?
They can be used alongside multiplier models for private companies and as a supplement to present value or multiplier models for public companies, especially as fair value reporting increases.
Asset Based Models can be a floor valuation, whereas others can be more forward looking
What type of intangible assets might not be reflected on a company’s balance sheet?
Synergies, business reputation, brand loyalty, etc.
When is a forward-looking cash flow valuation preferred over an asset-based valuation?
When a company has significant intangible assets.
Why can asset values be difficult to estimate in a hyperinflationary environment?
Rapidly changing prices make it difficult to determine accurate current market values.
