Equity Investments II
Reading 41. Equity Valuation: Concepts and Basic Tools
Learning Outcome Statements
j. describe asset-based valuation models and their use in estimating equity value;
k. explain advantages and disadvantages of each category of valuation model.
CFA Curriculum, 2020, Volume 5
Subject 6. Asset-Based Valuation
Pursuant to accounting conventions, most assets are reported on the books of the subject company at their acquisition value, net of depreciation where applicable. These values must be adjusted to fair market value wherever possible.
The value of a company's intangible assets, such as goodwill, is generally impossible to determine apart from the company's overall enterprise value. For this reason, the asset-based approach is not the most probative method of determining the value of going business concerns. In these cases, the asset-based approach yields a result that is probably less than the fair market value of the business.
The result from an asset-based valuation model may be used as a "sanity check" when compared to other models of valuation.
User Contributed Comments 3You need to log in first to add your comment.
To do the "sanity check", you might need one yourself considering all the work you need to do for this method.
or after registering to take the CFA exams....
Very well said !! lol