Adjusted Net Asset Method

What Is the Adjusted Net Asset Method?

The adjusted net asset method is a business valuation technique that changes the stated values of a company's assets and liabilities to mirror its estimated current fair market values better. By adjusting asset or liability values up or down, the net effect offers values that can be utilized in going-concern appraisals or liquidation situations. This method may likewise be called the asset accumulation method.

How the Adjusted Net Asset Method Works

In certain cases, it could be challenging to collect an accurate business valuation utilizing market or income-based approaches. These methods are common in dividend discount, capitalization, and cash flow models. The alternative method centers around assets and liabilities of a business enterprise.

The adjusted net asset method would incorporate substantial and elusive assets during the adjustment cycle. Likewise included are off-balance sheet (OBS) assets and unrecorded liabilities, like leases or other outstanding commitments. The difference between the total fair market value of the adjusted assets and the total fair market value of the adjusted liabilities is the "adjusted book value" (what the business is viewed as worth).

As indicated by Sean Saari, CPA/ABV, of the accounting firm Skoda Minotti, consideration of the adjusted net asset method is commonly most suitable when:

• Esteeming a holding company or a capital-escalated company;
• Losses are consistently created by the business; or
• Valuation methodologies based on a company's net income or cash flow levels demonstrate a value lower than its adjusted net asset value.

"One necessities to keep at the top of the priority list that when income or market-based valuation approaches demonstrate values higher than the Adjusted Net Asset Method, it is regularly excused in arriving at the finished up value of the company," Saari composed. "This is on the grounds that income and market-based valuation approaches give a considerably more accurate impression of any goodwill or immaterial value that the company might have."

Special Considerations

The adjusted net asset method is the most common asset-based approach. In any case, income-and market-based approaches will generally give a more accurate representation of goodwill and immaterial value.

Adjustments made to the net asset method can incorporate adjusting fixed assets to reflect fair value, adding in unrecorded liabilities (for example decisions), and diminishing accounts receivable to account for uncollectable balances.

Once more, the adjusted net asset method can be utilized for different valuations, like liquidations. This method may likewise be helpful while esteeming holding companies or those operating in capital-escalated industries. Other such situations when the adjusted net asset method is helpful is when valuations based on income or cash flow are lower than the adjusted net asset value.

Features

• This valuation method can be utilized in liquidation situations or going-concern evaluations.
• The adjusted book value is the difference between the total fair market value of the adjusted assets and the total fair market value of the adjusted liabilities.
• The adjusted net asset method, likewise called the asset accumulation method, is a business valuation that changes assets and liabilities to reflect fair market value.
• Remembered for the adjusted net asset method are off-balance-sheet assets and unrecorded liabilities like leases.
• The adjusted net asset method centers around assets and liabilities, while other valuation methods, for example, dividend discount, are income-based.