Winter 2018

Thought Leadership in the Asset-Based Approach to Business Valuation
Editor for This Issue: Robert F. Reilly, CPA
Business Valuation Thought LeadershipThought Leadership Discussion:
Fundamentals of the Asset-Based Business Valuation Approach
Weston C. Kirk and Kyle J. Wishing
Valuation analysts (“analysts”) value closely held business and business ownership
interests for various transaction, financing, taxation, accounting, litigation, and planning
purposes. Analysts should consider the application of all three generally accepted business
valuation approaches in these analyses: the income approach, the market approach, and
the asset-based approach. However, most analysts rarely apply the asset-based approach,
at least in valuations of going-concern operating companies. This discussion describes
the theory and application of the asset-based approach. And, this discussion explains
how this approach can be used to value operating companies—as well as asset-holding
investment companies—on a going-concern basis. The asset-based approach is not usually
recommended as the sole basis for the business valuation. However, due to data or other
constraints, the income approach and the market approach are not always available to
value an operating company. In addition, the asset-based approach may be used as a
complementary or confirmatory analysis in conjunction with both income approach and
market approach valuation analyses.
The Asset-Based Approach—The Asset Accumulation Method
Nathan P. Novak and Robert F. Reilly, CPA
Valuation analysts (“analysts”) are often called on to value closely held businesses, business
ownership interests, and securities for a variety of client reasons. The engagements could
involve transaction, taxation, financing, controversy, planning, and other reasons. Such
analysts often immediately disregard the asset-based approach as a viable analytical
approach to value the subject closely held company. However, the asset-based approach
is a generally accepted business valuation approach that deserves consideration either as
a primary—or as a confirmatory—valuation analysis. Two of the common asset-based
approach valuation methods include (1) the asset accumulation method and (2) the
adjusted net asset value method. This discussion describes and illustrates the application of
the asset accumulation method.
The Asset-Based Approach—The Adjusted Net Asset Value Method
Scott R. Miller and Robert F. Reilly, CPA
Valuation analysts (“analysts”) typically claim to consider all three generally accepted
business valuation approaches in the valuation of a closely held business, business
ownership interest, or security. However, most analysts then immediately dismiss the assetbased
approach in favor of the income approach and the market approach. These analysts
usually provide little or no explanation for this analytical dismissal. There are two common
asset-based approach business valuation methods: (1) the asset accumulation method
and (2) the adjusted net asset value method. This discussion explains and illustrates the
application of the adjusted net asset value method in the valuation of a typical closely held
business or security.
Tangible and Intangible Property Valuation Due Diligence Procedures
Casey D. Karlsen and Robert F. Reilly, CPA
One component of many asset-based approach business valuation analyses is the valuation
of the subject company’s tangible property assets and/or intangible property assets. This
discussion summarizes what valuation analysts (“analysts”)—and other parties who rely
on business valuation analyses—need to know about the analyst’s property valuation due
diligence procedures.
Industrial and Commercial Real Estate Appraisal Procedures
John C. Ramirez
The application of the asset-based approach to business valuation often involves the appraisal
of the subject company’s industrial and commercial real estate. This discussion summarizes
what valuation analysts—and the parties who rely on their business valuations—need
to know about the appraisal of operating company industrial and commercial real estate
appraisal as part of the asset-based approach business valuation analysis.
Industrial and Commercial Personal Property Appraisal Procedures
John C. Ramirez
The asset-based approach to business valuation often involves the appraisal of an operating
company’s industrial or commercial tangible personal property. This discussion summarizes
what valuation analysts—and the parties who rely on their business valuations—need to
know about the industrial or commercial personal property appraisal process as part of the
asset-based approach business valuation analysis.
Best Practices Discussion:
Valuation of Intellectual Property as Part of the Asset-Based Approach
Kevin M. Zanni and Robert F. Reilly, CPA
The asset-based approach is a generally accepted business valuation approach. This
approach may be used to value either operating companies or asset-holding companies
for transaction, taxation, financing, litigation, planning, and other purposes. The generally
accepted asset-based approach valuation methods often involve the valuation of the
operating company tangible assets and intangible assets. And, one common component of
the intangible asset valuation process is the identification and valuation of the operating
company’s intellectual property. This discussion summarizes what valuation analysts (and
their clients) need to know about valuing intellectual property as part of the application of
an asset-based approach business valuation.