What Is Asset Valuation, and What Is Needed?

Financial investigations can take many forms, including asset valuation. Asset valuation is used to determine the value of a piece of property, whether it’s real estate, a business, stocks and bonds or equipment. This could be used when you’re getting ready to sell a business, or when you’re calculating the value of shared assets in a divorce. Alternatively, you might need asset valuation when you’re trying to convince a lender to give you a new loan.

Here’s an overview of asset valuation and what you need to complete it. A forensic accountant can assist in the process.

A brief guide to asset valuation

Asset valuation can include both tangible and intangible assets. Tangible assets are physical ones, like real estate, office furniture, machinery and equipment, buildings and cash. Simple tangible asset valuation can be calculated by finding the total value of a business’s assets, then subtracting the value of the intangible assets and liabilities. The amount left over is the value of the tangible assets.

Intangible assets include items like patents, trademarks, company logos, franchises and more. They’re things without a physical form, but that still provide value to the business. For example, if your pharmaceutical company holds the patent to a hot new medication formula, that could be worth quite a bit to your company.

There are four different ways to determine the value of an asset. The cost method uses the historical price for which the asset was bought. The market value method, on the other hand, uses the value of what the asset would be worth if it were sold on the open market today. If you own a business, the base stock method uses the value of a certain amount of “base stock” to determine the company’s value. Finally, the standard cost method measures the difference between expected and actual costs. This helps accountants determine how much an asset might be worth, based on historical data.

What you need for asset valuation

If you need to value your assets, you’ll first need a list of every possible asset you own. First, make a list of your tangible assets, from cash to inventory to real estate. Next, work out your intangible assets, including patents, trademarks, client relationships and licensing agreements.

Once you have a list of all of your assets, you’ll also need to determine your liabilities: the money you owe to others. Broadly speaking, you add up the worth of your assets and subtract the amount of your liabilities to find the value of an asset or business.

However, asset valuation can be incredibly complex, especially if you own a large business. This is when it’s smart to hire an accountant for financial investigation purposes. A forensic accountant can go over your assets and liabilities with a fine-toothed comb, so you have a clear picture of what you’re working with. It’s also a good idea if you suspect someone of hiding assets or downplaying their value.

For assistance with asset valuation, reach out to Medina & Company Consulting, Inc. today to schedule a consultation.