ASSET BASED

VALUATION
BY : AMPINADO I EMBANG I FRAYCO I GALICHA I
JAVELLANO I JAVOC I MINO I RODRIGAZO I TEJOC
Book Value Method
Replacement Value Method
Reproduction Value Method
Liquidation Value Method
Liquidation Value TABLE
OF CONTENTS
ASSET BASED VALUATION
Asset has been defined by the industry as
transactions that would yield future economic
benefits as a result of past transactions.
In practice, valuation is a sensitive and
confidential activity in their portfolio
management.
Valuation should be kept confidential to allow the
company to negotiate a better position for them
to acquire an opportunity.
 GREEN FIELD BROWN FIELD
INVESTMENTS INVESTMENTS
These are investments These are investments
that started from scratch that started from scratch
while brownfield while brownfield
investments are those investments are those
opportunities that can be opportunities that can be
either partially or fully either partially or fully
operational. operational.
GOING CONCERN BUSINESS
OPPORTUNITIES (GCBOS)
GCBOS are those businesses that have a long-term to
infinite operational period. The advantage of GCBOS is
that we already have a reference for their performance
- from its historical performance or an existing
business with a similar nature.
THE COMMITTEE OF SPONSORING
ORGANIZATION OF THE TREADWAY
COMMISSION (COSO)

The Committee of Sponsoring Organization of

the Treadway Commission (COSO) suggests that
risk management principles must be observed in
doing business and determining its value.
 1. Increase the opportunities;
IT WAS NOTED IN THEIR 2. Facilitate management and identification
REPORT THAT THE BENEFITS of the risk factors that affect the business;
3. Identify or create cost-efficient
OF HAVING A SOUND opportunities
ENTERPRISE-WIDE RISK 4. Manage performance variability.
MANAGEMENT ALLOWS THE 5. Improve management and distribution of
COMPANY TO: resources across the enterprise; and
6. Make the business more resilient to
abrupt changes.
Since the entire company is driven by its asset base,
the value of the company be best attributed to the
value of its assets. The advantage of using this
approach is it enables the analyst to validate the firm
value through the value its assets.

In asset-based valuation, familiarity with the generally

accepted accounting principles is a key attribute for
an analyst to enable them to establish the value.
Asset-based valuation can be used if the basis of the
value is concretely established and complete.
Information required for asset-based valuation include
total value of the assets, the financing structure (i.e.
total es and total equity), classes of equity and other
sources of funding.
1. Book value method;
2. Replacement value method;
3. Reproduction value
method; and
4. Liquidation value method.
AMONG THE POPULAR
METHODS USED TO
DETERMINE THE VALUE
USING ASSETS AS ITS
CAUSES ARE:
BOOK VALUE
METHOD
BOOK VALUE METHOD
Book value can be defined as the value recorded
in the accounting records a company.

The book value is highly dependent on the value

of the assets as declared in the audited financial
statements, particularly the balance sheet or the
statement of financial position.
Assets are required to be categorized
into current and non-current assets.
Current assets are those expected
to be realized within the company's
normal operating cycle, expected to
be realized within 12 months after
these transactions were reported, or
held primarily for the purpose of
trading.
Non-current Assets are assets
wherein benefits can be realized in
more than 12 months.
Liabilities is also categorized as
current and non-current.
Current Liabilities are those expected
to be settled within the company's
normal operating cycle, due to be
settled within 12 months or held for the
purpose of trading or if the company
does not have ability to settle beyond 12
months.
Non-current Liabilities are liabilities
which are due to be settled longer than
12 months.
BOOK VALUE METHOD FORMULA

Net Book Total Assets - Total Liabilities

Value of =
Assets Number of Outstanding Shares
To illustrate,
XYZ Corp. in the Year 2021 presented
their statement of financial position with
the following balances: Current Assets is
Php500,000,000; Non-current Assets is
Php1,000,000,000; Current Liabilities is
Php200,000,000; Non-current Liabilities is
Php700,000,000 and the Outstanding
shares is 1,000,000.
 COMPUTATION :

Current Assets Php 500,000,000

Non-current Assets 1,000,000,00
Total assets. Php 1,500,000,000

Current Liabilities Php 200,000,000

Non-current Liabilities 700,000,000
Total Liabilities Php 900,000,000
 COMPUTATION :
NET BOOK Php1,500,000,000 - Php900,000,000
VALUE OF =
ASSETS 1,000,000 shares
NET BOOK Php 600,000,000
VALUE OF =
ASSETS 1,000,000 shares
NET BOOK
VALUE OF = Php 600 per share
ASSETS
REPLACEMENT
VALUE METHOD
REPLACEMENT VALUE METHOD
The National Association of Valuators and Analysts
has defined the replacement cost as the cost of
similar assets that have the nearest equivalent
value as of the valuation date.

Under the replacement value method, the value of

the individual assets shall be adjusted to reflect
the relative value or cost equivalent to replace that
asset.
 •AGE OF THE ASSETS- It is important to know
how old the asset is.
THE FOLLOWING ARE THE •SIZE OF THE ASSETS- This is important for
FACTORS THAT CAN AFFECT fixed assets particularly real property where
assets of the similar size will be compared.
THE REPLACEMENT VALUE
OF AN ASSET: •COMPETITIVE ADVANTAGE OF AN ASSETS-
Assets which have distinct characteristics are
hard to replace. However, the characteristics
and capabilities of the distinct asset might be
found in similar, separate assets.
BOOK VALUE METHOD FORMULA

Net Book Value ± Replacement Adjustment

Replacement
Value per =
Share Outstanding Shares
To illustrate:
Following through the given information
for Grapes and Vines Corp., suppose that
50% of the non-current assets has an
estimated replacement value of 150% of
its recorded net book value while the
remaining half has estimated replacement
value of 75% of their recorded net book
value. With the given information, the
equity value is adjusted:
 COMPUTATION :
1. Calculate the replacement value of the affected items.
50% of Non-current Assets - 150% of the net book value

Non-current Assets Php 1,000,000,000

% of affected item 50%
50% of the Non-current Assets 500,000,000 Total Adjusted Non-current Assets
Premium on Replacement 150%
Adjusted Non-Current Assets (A) Php 750,000,000
Adjusted Non-Current Assets (A) Php 750,000,000
Adjusted Non-Current Assets (B) 375,000,000
50% of Non-current Assets is 75% of the net book value
TOTAL ADJUSTED NON-CURRENT ASSETS PHP 1,125,000,000
Non-current Assets Php 1,000,000,000
% of affected item 50%
50% of the Non-current Assets 500,000,000
Discount on Replacement 150%
Adjusted Non-Current Assets (B) Php 375,000,000
 COMPUTATION :
11. Add back the unadjusted components.
Total Adjusted Non-current Assets Php1,125,000,000
Add: Current Assets 500,000,000
TOTAL ASSETS - REPLACEMENT VALUE PHP1,625,000,000

111. Apply the Replacement Value Formula

P 1,625,000,000-P 900,000,000
Replacement Value =
1,000,000 shares
P 725,000,000
Replacement Value =
1,000,000 shares

Replacement Value = Php 725 per share

REPRODUCTION
VALUE METHOD
In some instances, no external
information is available that can serve
as basis for replacement cost of
assets that are highly specialized in
nature. In this case reproduction
value is used instead. Reproduction
value is an estimate of cost
reproducing, creating, developing or
manufacturing a similar asset.
For example, the firm has an internally
constructed equipment costing Php 1 million
that processes 500 tons of inventory. After
few years of using the ent the firm estimated
that developing another asset with similar Le
to generate 500 tons of inventory will cost Php
1.3 Million.
The reproduction value method requires
reproduction cost analysis which is internally
done by companies especially if the assets are
internally developed. Hence this method is
useful when calculating the value of new or
start-up businesses, ventures that use
specialized equipment or assets.

While this is a convenient approach, the

challenge of using reproduction value method
is the ability to validate the reasonableness of
the value calculated since there are only
limited sources of comparators and benmark
information that can be used .
 1. Conduct reproduction costs analysis
on all assets
STEPS IN DETERMINING
THE EQUITY VALUE USING 2. Adjust the book values to
THE REPRODUCTION reproduction costs values (similar as
replacement value)
VALUE METHOD ARE AS
FOLLOWS: 3. Apply the replacement value formula
using the figures calculated in the
preceding step
To illustrate using the information of
Grapes and Vines Corp.
Supposed that it was noted that the
80% of the total noncurrent assets are
cheaper by 90% of the book value when
reproduced. 20% of the total noncurrent
assets are comprised of goodwill which
upon testing was proven to be valued
correctly.
 1
Conduct reproduction cost analysis to all
assets 80% of the Total Noncurrent Assets if
reproduced is equal to 90% of its value.
 1
Conduct reproduction cost analysis to all assets
80% of the Total Noncurrent Assets if reproduced
is equal to 90% of its value.

Non-current Assets Php 1,000,000,000

% of affected item 80%
Php 800,000,000
 2
Adjust the book value to reproduction cost
Non-current Assets Php 800,000,000
Reproduction Cost Estimate % 90%
Reproduction Cost Php 720,000,000
Non-Current Assets - Reproduction Cost Php 800,000,000
Add: Goodwill 90%
Total Non-current Assets Php 800,000,000
Add: Current Assets 90%
Total Assets Php 720,000,000
 3
Apply the replacement value formula using the
figures calculated in the preceding step.
Reproduction Php 1,420,000,000 - Php 900,000,000
Value =
1,000,000 shares
Reproduction
Value = Php 520,000,000
1,000,000 shares
Reproduction
Value = Php 520 per share
 LIQUIDATION
VALUE METHOD
Liquidition value method is an equity
valuation approach that considers the
salvage value as the value of the asset. This
assumes that the reasonable value for the
company to be purchased is the amount
which the investors will realize in the end of
its life or the value of the when it is
terminated.
While the value provides is the most
conservative, the limitation of this approach
is that the future value is not fully
incorporated in the calculated equity value.
 THANK YOU
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