ASSET-BASED VALUATION

Assets: transactions na magyiyield ng future economic benefits as a result ng past transactions. Yung
value ng investment opportunities ay dependent highly sa value ng asset na magegenerate from now
hanggang sa future. Nakapaloob dapat sa value lahat ng cash flows na magegenerate hanggang sa
disposal ng asset.

* So in practice, yung valuation ay isang sensitive at confidential activity sa portfolio management nito.
Kailangan itong ikeep as confidential para mag-aallow sa company na makapag-negotiate ng better
position para maacquire yung isang opportunity.

*Since yung value ng assets ay nakadepende sa ability nito to generate economic benefits, it is more
challenging to determine kung ano yung value ng green field investment (type ng foreign direct
investment na kung saan yung parent company ay gumagawa ng subsidiary sa ibang bansa, building its
operations from the very beginning) dahil yung value ay dapat naka base sa pure estimates compare sa
brown field investment (happens kapag yung isang company purchases an entity that is already in the
going concern state/an existing entity).

* Mostly ng business ay mayroong optimistic perspective na maggrogrow sila in the future. That’s why
they can be considered as going concern business opportunities (GCBOs). Sila yung mga businesses na
mayroong long-term to infinite operational period.

* Isa sa advantages ng mga GCBOs ay mayroon na agad silang reference mg performance nila from their
historical performance or an existing business na mayroong similar nature.

*Sinasuggest ng Committee of Sponsoring Organization of the Treadway Commission nas yung risk
management principles ay ma observe sa paggawa ng businesses at sa pagdetermine ng value nito. It is
noted sa report na ang benefits of having sound Enterprise-wide Risk Management allows the company
to:

1) increase the opportunities;

2) facilitate management & identification ng mga risk factors that affect the business;

3) identify or create cost-efficient opportunities;

4) manage performance variability;

5) improve management & distribution ng resources across sa enterprise;

6) make the business more resilient sa abrupt changes

*Yung importance ng pag identify ng risks ay para ma enable yung mga investors na ma quantify yung
impact ng risk at yung cost ng pagmamanage sa mga risks na ito. Yung asset value ay dependent sa
economic benefits na binibigay nito (I.e cash flows).

*Since nga yung buong company ay driven ng assets base nito, yung value ng company can be best
attributed sa value ng mga assets nito. Yung advantage sa paggamit ng approach na ito ay dahil
ineenable niya yung mga analysts na I validate yung firm value through the value ng mga assets nito.
*Yung ibang approaches ay maaaring magrely sa ability ng asset na maggenerate ng mas maraming
revenues. Pero, nakafocus lamang ito sa current at historical value ng asset at dinidisregard yung value
na pede nitong magenerate sa future at hindi fully narerepresent sa true value ng assets.

*Sa asset-based valuation, yung familiarity sa GAAP ay isang key attribute para sa mga analyst because it
enables them to establish the value. Nagagamit yung asset-based valuation if yung basis ng value ay
concretely established at kumpleto. Nakapaloob sa required information para sa asset-based valuation
yung total value ng assets, financing structure (e.g total liab at total equity), classes ng equity at other
sources ng funding.

*Ilan sa popular methods na ginagamit para madetermine yung value using assets bases ay ang 1) book
value method; 2) replacement value method; 3) reproduction value method; 4) liquidation value
method.

BOOK VALUE METHOD:

- value recorded sa accounting records ng kompanya. Ito ay highly dependent sa value ng assets
as declared sa audited FS, particularly sa balance sheet.
- Nirerequire ng IAS 1 na kailangan naka summarize na sa balance sheet yung total value ng
assets, liabilities at equity ng firm.
- Kailangan naka-categorized ang assets sa current at non-current assets. Current assets ay yung
mga assets na expected to be realized sa loob ng 12 months after mareport yung mga
transactions na ito or sa company’s normal operating cycle or held primarily para purpose of
trading. Pede lamang iinclude dito ang cash and cash equvalents kapag hindi ito restricted. Yung
non-current assets naman on the other hand ay mga assets na marerealized more than 12
months.
- Kailangan ding icategorize yung mga liabilities as current at non-current. Current liabilities:
expected to be settled within 12 months. Non-current liabilities are those that are due to be
settled longer than 12 months.
- Sa bbok value method, yung value ng enterprise is nakabase sa book value ng assets less sa lahat
ng non-equity claims agaist it.
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠− 𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
- FORMULA: Net Book Value of Assets =
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑂𝑢𝑡𝑠𝑡𝑎𝑑𝑖𝑛𝑔 𝑆h𝑎𝑟𝑒𝑠
- Yung advantage ng paggamit ng book value method is that nagproprovide ito ng more
transparent view sa firm value at mas verifiable since naka base ito sa figures reflected sa FS.
Pero yung book value ay nagrereflect lamang sa historical value at maaaring hindi mareflect
yung current real value ng business.

REPLACEMENT VALUE METHOD:

- Kung yung book value method ay nag ooffer ng convenient determination ng company value,
yung limitation naman sa book value method is that hindi nito inaaccount yung full value ng net
assets now na maaaring mafresult sa overage or understatement ng value ng nets assets
recorded sa books.
 - Dinefine ng National Association of Valuators and Analysts ang replacement cost as the cost ng
similar assets na mayroong nearest equivalent value as of the valuation date.
- Under ng method na ito, yung value ng individual assets ay dapat I adjust para mareflect yung
relative value or cost equivalent to replace that asset. Here are the following factors na makaka
affect sa replacement value ng asset:
o Age of the asset: importante na malaman kung gaano na katanda ang isang asset.
Ineenable nito yung mga valuator para madetermine yung costs related para lamang ma
upkeep yung similarly aged asset at kung yung assets ba na may similar engineering
design ay available pa rin sa market.
o Size of the assets: importante ito sa mga fixed assets particularly sa mga real property
kung saan yung mga assets na mayroong similar size ay ipagkukumpara. Yung ibang
analysts find that yung assets ay maaaring makaproduce ng same volume para sa assets
na of the same size.
o Competitive advantage of the asset: yung assets na mayroong distinct characteristics ay
mahirap ireplace. Pero yung characteristics at capabilities ng distinct asset might be
found similar, saparate assets. Yung ibang valuators pinagcocombine yung value ng
similar, separate assets na kayang iperform yung function ng distinct asset being valued.
- Merong specific discipline sa pagdetermine ng replacement value. Yung mga appraisers meron
silang sariling technique para madetermine yung replacement value.
- Ginagamit ng mga insurance companies yung replacement value para madetermine yung
appropriate insurance premium na ichacharge nila sa clients.
- FORMULA: VALUE OF THE EQUITY USING THE REPLACEMENT VALUE METHOD

Replacement Value per Share =

𝑁𝑒𝑡 𝐵𝑜𝑜𝑘𝑉𝑎𝑙𝑢𝑒 ( 𝑒𝑖𝑡h𝑒𝑟 𝑎𝑠𝑠𝑒𝑡𝑠 𝑜𝑟 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 ) ± 𝑅𝑒𝑝𝑙𝑎𝑐𝑒𝑚𝑒𝑛𝑡 𝐴𝑑𝑗𝑢𝑠𝑡𝑚𝑒𝑛𝑡
𝑂𝑢𝑠𝑡𝑎𝑑𝑖𝑛𝑔 𝑆h𝑎𝑟𝑒𝑠

REPRODUCTION VALUE METHOD:

- Merong ibang instances na kung saan walang external information na available na pedeng mag
serve as basis sa replacement cost ng assets na highly specialized in nature. Kapag may case na
ganito, reproduction value ang pedeng magamit na method.
- Ito yung estimate cost ng reproducing, creating, developing or manufacturing ng similar asset.
- Nirerequire ng method na to yung reproduction cost analysis na kung saan internally done by
companies especially if yung assets ay internally developed.
- Useful yung method na to kapag nagcacalculate ng value ng new or start-up businesses,
ventures na gumagamit ng specialized equipment or assets, firms na heavenly dependent sa
intangible assets at yung may limited market information.
- Kahit na convenient approach ito, yung challnege sa paggamit ng method na ito ay yung ability
na ivalidate yung reasonableness ng value calculated dahil limited lamang yung sources ng
comparators at benchmark information na pedeng magamit.
- STEPS IN DETERMINING THE EQUITY VALUE USING THE REPRODUCTION VALUE METHOD:

1) Conduct reproduction costs analysis on all assets

 2) Adjust the book values to reproduction costs values (similar as replacement value)

3)Apply the replacement value formula using the figures calculated in the preceding step.

1) NC Assets

Multiply by: % of affected item

Adjusted NC Assets

2) Adjusted Assets

Divided by: Reproduction Cost Estimate %

Reproduction Cost

Add: NC Asset

Total NC Asset

Add: C Asset

Total Assets

3) Reproduction Value =
𝑁𝑒𝑡 𝐵𝑜𝑜𝑘𝑉𝑎𝑙𝑢𝑒 ( 𝑒𝑖𝑡h𝑒𝑟 𝑎𝑠𝑠𝑒𝑡𝑠 𝑜𝑟 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 ) ± 𝑅𝑒𝑝𝑙𝑎𝑐𝑒𝑚𝑒𝑛𝑡 𝐴𝑑𝑗𝑢𝑠𝑡𝑚𝑒𝑛𝑡
𝑂𝑢𝑠𝑡𝑎𝑑𝑖𝑛𝑔 𝑆h𝑎𝑟𝑒𝑠

LIQUIDATION VALUE METHOD:

- Isang equity valuation approach na kinoconsider yung salvage value ng asset. Inaassume nito na
yung reasonable value ng company to be purchased ay yung amount kung saan marerealize ng
investors sa end ng life or value of it when it’s terminated.
- Yung value naman na pinoprovide nito ay ang pinaka-conservative, pero yung limitation ng
approach na ito is that yung future value ay hindi fully incorporated sa calculated equity value.