Asset methods rarely produce the highest number, but they almost always produce the floor — and a buyer who knows the floor will negotiate towards it.
Net asset value
Total assets less total liabilities, with each asset restated to current value rather than depreciated book cost. Property is revalued, obsolete stock written down, uncollectable debtors removed, and internally generated goodwill excluded. The result is the adjusted net asset value.
Orderly liquidation value
What the assets would realise if sold individually over a reasonable period, net of selling costs. Plant and equipment typically realise 40–70% of written-down value; specialised equipment much less. This is the number a secured lender cares about and the number a distressed sale gravitates to.
Replacement cost
What it would cost to build the same operating capability today — assets, fit-out, systems, trained staff and time to reach current trading. Useful for asset-heavy businesses and as a ceiling test: no rational buyer pays materially more than the cost of building the same thing.
Excess earnings — bridging assets and goodwill
The excess earnings (Treasury) method splits value in two. Tangible assets earn a fair return; anything the business earns above that return is attributable to goodwill, which is capitalised at a higher rate to reflect its risk. Adding the two gives a total value that explicitly shows how much you are paying for intangibles.
When asset methods lead
- Property, equipment or investment holding entities
- Businesses earning less than a fair return on their assets
- Companies being wound up or sold in parts
- Any business where earnings-based values fall below net assets
If your earnings-based valuation is below adjusted net asset value, the rational course is usually to sell the assets rather than the business — which is exactly what a buyer will point out.