NBA professionals are hired by attorneys to value their clients business assets or provide expert witness and litigation support services
Asset Appraisals - approaches and methods
Commonly Used Appraisal Methods of Are Grouped Into Two General Approaches
The asset-based approach is defined in the International Glossary of Business Valuation Terms as "a general way of determining a value indication of a
business, business ownership interest, or security using one or more methods based on the value of the assets net of liabilities." Any asset-based approach
involves an analysis of the economic worth of a company's tangible and intangible, recorded and unrecorded assets in excess of its outstanding liabilities.
Thus, this approach addresses the book value of the Company as stipulated in
Asset-based Approaches can also be valid in the context of a company which has very poor financial performance. An important consideration
when using an asset approach is the premise of value, both for the company and for individual assets. With respect to an individual tangible asset or group of intangible assets,
the cost approach begins with the original cost of said tangible asset or group of tangible assets. The cost is adjusted downward for use based on the passage of time
as with the straight line depreciation method in accordance with the asset's age. Alternately, it can be adjusted downward based on usage such as mileage for vehicles or hours used
for equipment. Additionally, upward adjustments can be made if an asset is refurbished. This final adjusted cost is the new cost basis for the tangible asset or group of
The idea behind the market approach is that the value of the physical assets can be determined by reference to reasonably comparable guideline ("comps") for
which transaction values are known. The values may be known because the comparable asset was recently sold and the terms of the transaction were disclosed.
Additionally, this approach can work well for any physical asset for which comparable information on a sold asset can be found.
In appraising physical assets the market approach is utilized. It is the primary approach to be utilized in order to determine the true market value of a physical asset at the valuation
date. However, "Comps" are not always available and sometimes the appraiser must use his best judgment along with whatever information that is available that
can be adjusted for the specific needs of the appraisal engagement.
This approach is commonly used especially in contexts where the user(s) of the analyst's report do not have specialized appraisal knowledge. There is an
obvious parallel in a lay person's mind to consulting with a real estate agent prior to listing your home for sale to find out for what amount similar homes in
your neighborhood have sold. The market approach is the most common approach employed by real estate appraisers. Real estate appraisers generally have from
several to even hundreds of comps from which to choose. For equipment, machinery, vehicle, etc., sources such as Kelly Bluebook, AutoTrader, EquipmentTrader, E-bay and equipment
venders and brokers can be utilized to find comparable assets for sale. Then adjustments can be made to account for the differences in the items offered and the actual assets
being appraised. Additionally, adjustments may need to be made since "asking prices" are not always the same as "selling prices". This is where the experience and judgment
of the appraiser comes in to play. The final assessed value based on the adjusting of the comparable sold assets or assets for sale become the Market Value of said tangible
asset(s). Market Value is always preferable to the Adjusted Cost Value where it can be obtained or assessed.
Reconsiliation of Values and Selection of Final Value
The last step in the appraisal process is to compare and analyze the differences between the values under both the Cost and Market Approaches. Then the most appropriate value is selected
and the decision justified and stated as a conclusion in the professional's opinion.