Asset-based approach
Valuing a business as the fair value of its assets less its liabilities. Suits holding and resource companies and those likely to be liquidated, not firms whose worth lies in intangibles.
Where you will meet it
Asset-based approach appears in 2 learning outcomes on the CFA syllabus. A few of them:
- Explain the general criteria for picking a suitable way to value a particular company
“It should fit the business: dividend models for steady payers whose dividends track earnings, free cash flow models for firms whose cash generation differs from what they pay out, residual income where free cash flow is negative for years, and asset-based approaches where assets are mostly financial or liquidation is likely.”
- Explain the asset-based, market and income ways of valuing a private firm and what bears on choosing each one
“The asset-based approach sums the fair values of assets less liabilities, and suits holding companies, resource companies, very early-stage businesses, or those likely to be liquidated.”
See also
Practise it
Practise asset-based approach until it is automatic: questions that explain every wrong option.
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