31/05/2022

ASSET VALUE

VALUE
 Purpose of an investment is to obtain value

 Value is established through the process of valuation

 Value involves objective and subjective appraisal, assessment, estimation, evaluation, or

judgment of advantage, benefit, desirability, effectiveness, practicality, quality or utility of
something

Subjectivity implies that the determination of the value of an asset depends on how each stakeholder
perceives the importance, worth, or usefulness of the asset.

1
 31/05/2022

Stakeholder perceptions of the value of an engineered asset

Investment
Preserve and Create Value (provide benefits)

Investment Appraisals – to assess expected future benefits

Asset must have the capacity to be productive

Only reason for managing an asset – To realise value (purpose & objective of the investment)

Paradox:
• An engineered asset requires upkeep (implies continued investment)

2
 31/05/2022

An asset is an investment that generates value

Internationally accepted approaches/methods for

the valuation of fixed assets
The income approach - based on the earning capacity or income potential of the asset, that is, where the
asset is utilized to generate income either directly or indirectly.

The income approach tends to be applied towards investment decisions such as the acquisition of an asset.
In this regard, the cost of capital is a crucial factor and poor estimation of the cost of capital can lead to
very unreliable valuation

The market approach - based on market comparisons or relative values.

The valuation can be determined by comparative analyses of recent sales or purchases of the same or
similar asset,

Involves an estimation of how a similar or a comparable asset is priced by the market

3
 31/05/2022

Internationally accepted approaches/methods for

the valuation of fixed assets

The asset approach is based on:

a. replacement cost of a new asset of the similar design, capability and capacity;

b. ‘fair value’ based on exchange (i.e., similar to the market approach);

c. ‘good as new’ valuation representing the original cost less depreciation plus maintenance
costs;

d. depreciated book value; and

e. ‘sum of parts’ valuation .

Valuation
For managers of deployed equipment and machinery, replacement decisions due to degradation
in performance tend to be the foremost purpose for valuation.

The degradation in performance may manifest as technical malfunction or total functional

failure.

However, for structural assets (as predominant in infrastructure and facilities), refurbishment
and renovation are also motivated by deterioration and/or obsolescence as well as concerns for
the environment and ecology.

4
 31/05/2022

Value & Valuation

The relationship between value and valuation gives an indication of the rate at which an asset
creates or destroys value. The ratio can be interpreted as efficiency:

The value obtainable and value invested are cumulative over time and contain both quantitative
and qualitative elements.