Asset Valuation Ch-1

Asset Valuation

What is an 'Asset Valuation'

An asset valuation is a method of assessing the worth of a company, real property, security, antique or other item of worth including intangible assets. Asset valuation is commonly performed prior to the sale of an asset or prior to purchasing insurance or loan against mortgaging an asset.

A valuation is also the process of determining the current worth of an asset or company. There are many techniques that can be used to determine value, some are subjective and others are objective.

BREAKING DOWN 'Asset Valuation'

Asset valuation may consist of both subjective and objective measurements. For example, in valuing a company, there is no financial statements that tells how much its brand name is worth; this aspect of asset valuation must be subjective. On the other hand, net profit is an objective measurement based on the company's income and expense figures.

Common methods for determining an asset's value include comparing it to similar assets and evaluating its cash flow potential. Acquisition cost, replacement cost and deprival value are also methods of asset valuation.

For example, an analyst valuing a company may look at the company's management, the composition of its capital structure, prospect of future earnings, and market value of assets.

Judging the contributions of a company's management would be more of a subjective valuation technique, while calculating intrinsic value based on future earnings would be an objective technique.