The Meaning and Approach of Asset Valuation
When reviewing a business’s value, there are several factors to consider in your calculations. These include material assets, such as equipment and property, immaterial assets, such as intellectual property and trademarks, and financial assets, such as stocks. When asking what is asset valuation, the answer is calculating the value of these previously mentioned items. When you accurately calculate the total value of a company’s assets, you then have a clear picture of its overall net worth. As company assets can include both material and immaterial items, some of these are more difficult to assign a value to than others. However, an accurate calculation company’s true value is a useful tool that has many practical applications.
Four Uses of Asset Valuation
- Calculate Company Taxes Accurately: A business owes regular taxes for various assets such as property, production facilities, and office space. With correct valuation figures, these assets can have their taxes correctly calculated by a company’s accounting department or financial officers.
- Know the Proper Value of a Company in Case of a Sale: When a company is for sale or in the process of being purchased, both parties should have an exact figure in mind. This ensures that if you are a buyer you do not overpay for acquiring a new company. On the other side of the deal, if you are a seller, this ensures you receive a fair purchase price for your company and its associated assets.
- Stock Prices: When a company sells shares on the stock market, the price of its shares is of utmost importance. A high or low stock price is based on the company’s overall value and performance in the marketplace. No matter if buying or selling company stock to properly calculate the share value, an asset valuation is required.
- Financial Assets: Other financial tools such as loans and insurance also use the figures asset valuation calculates. For insurance, these calculations can be used to determine the premium costs. For business loans, these figures can be used as collateral which determines both the loan terms and how much can be borrowed.
Final Thoughts on the Meaning and Approach of Asset Valuation
There are many ways to calculate the total asset valuation of a company. For example, fixed assets such as buildings can its value calculated based on their costs, their value if sold, or the amount of profit it generates. Comparably intangible assets can have value calculated based on the general market cost, cost to acquire, or present value. Finally, stocks have several specific formulas to determine value. As with all types of accounting methods, it’s important to keep your business model and goals in mind when calculating its total overall value.