Reading 46: Private Company Valuation-LOS j 习题精选 2011, following, regarding, valuation

土豆妮

Session 12: Equity Investments: Valuation Models
Reading 46: Private Company Valuation

LOS j: Demonstrate the asset-based approach to private company valuation.

 

 

Which of the following is most accurate regarding the asset-based approach? Of the three valuation methods for private firms, it usually:

A) results in the lowest valuation.

B) is not difficult to apply.

C) is the most appropriate for going concerns.

---

 

The asset-based approach is generally not used for going concerns. Because it is easier to find comparable data at the firm level compared to the asset level, the income and market approaches would be preferred to value going concerns.

Because it is difficult to find data for individual intangible assets and specialized assets, the asset-based approach can be difficult to apply. It generally results in the lowest valuation because the use of a firm’s assets in combination usually results in greater value creation than each of its parts individually.

土豆妮

The asset-based approach values a firm based on:

A) fair values.

B) book values.

C) investment values.

---

The asset-based approach values firm equity as the fair value of its assets minus the fair value of its liabilities.

土豆妮

When would the asset-based approach result in a higher valuation than its going concern value, in the case of private company valuation?

A) When valuing pharmaceutical firms.

B) If the firm has minimal profits and poor prospects.

C) When valuing biotech firms.

---

If a firm has minimal profits and little hope for better prospects; it might be valued more highly for its liquidation value than as a going concern if another firm can put the assets to better use. Because the asset-based approach values firm equity as the fair value of its assets minus the fair value of its liabilities, it would capture this liquidation value.

Pharmaceutical and biotech firms have a high degree of intangible assets. In these cases, the going concern value is likely to be higher than the value from the asset-based approach.