Follow Us:

Net Tangible Asset Value

Home Net Tangible Asset Value

Quick Contact

    Need Help?

    Please Feel Free To Contact Us. We Will Get Back To You With 1-2 Business Days.

    [email protected]
    +65 9730 4250

    Net Tangible Asset Value

    Net Tangible Asset Value: In the balance sheet of most companies or businesses, the business’s net assets are presented. However, the value of the company’s net assets stated there is not the business value representative.

    The cost basis of accounting is what most companies use to prepare their balance sheet. That is, where the information regarding the assets and liabilities of a company are recorded at their historical acquisition and purchase as against the market commanding value of the assets in a sale as when stated. An asset approach is used to find the value of net tangible assets.

    Valuation on REITs, Patent Valuation | Growth Equity Valuation, Valuation Of Asset Management Company

    What is the Asset Approach?

    The asset approach is one of the approaches to knowing the value of a business. It is among the standard three. Others are the market and income approach. An asset approach is an approach to understanding the value of a company where the balance sheet market value is used to determine equity value.

    The Adjusted net asset method is the method that is used in the asset approach. It values a business based on the difference between its asset fair market value and the fair market value of its liabilities. Through this method, analysts can establish a floor value of a business based on the amount that will come after the company’s assets are sold and its liabilities satisfaction.

    Adjustments are made under the adjusted net asset method

    They include:

    • Real Personal Property

    The book value of a business personal property such as furniture, vehicles, and fixtures or real property such as building, land, and land improvements does not always reflect fair market value. As a result, an expert appraisal from a third party is engaged to help find out the tangible assets’ market value.

    • Related party or receivables payables

    It’s necessary to consider if a receivable is payable or wholly collectible is meant to be paid in full. There are cases common to related parties like an intercompany receivable or a shareholder loan. Discuss every critical account with the company’s management to know if an adjustment is meant to account for future uncollected payable or receivables that are not made.

    • Unrecorded Assets and Liabilities

    It is paramount to check what not having liabilities or assets recorded would cause. An example of such an unrecorded asset or liability is potential legal judgments and settlements.

    • Goodwill and Intangible Assets

    Under the adjusted net asset method, intangible assets such as goodwill are usually written down to zero value. This is so because the value of such assets is best valued either by the market valuation approach or the income valuation. If these assets are stated on the company’s balance sheet but do not generate returns, it may question the assets. Thus, a warranty of further consideration is inevitable.

    Final Thought

    Though you can use the adjusted net asset method to find the value of any business, it is best to use it when there is a continuous generation of business losses and for capital-intensive and holding companies.