Net asset value
Net asset value is the difference between a business’s total assets and liabilities, restated at a chosen standard of value rather than at accounting book values. BDC describes the same steps using the fair-market value of the assets less total debts.
Net asset value starts from the balance sheet but does not stop at it. CBV Institute separates it from net book value, which uses accounting book values, by restating the assets and liabilities at a particular standard of value. BDC describes taking information from the balance sheet to estimate the fair-market value of the assets, then subtracting total debts.
Where it applies
BDC says asset-based approaches are typically used for businesses whose value is asset-related rather than operations-related, such as in real estate. It adds that they are also applied when a business does not generate a sufficient return on the assets it employs, or is expected to be liquidated. Liquidation value is the sale-based cousin, and business valuation methods compared sets both beside earnings-based methods.
What to check or ask
- Which standard of value the restated figures use
- Which assets were restated, and who supplied the new figures
- Whether any liabilities are missing from the balance sheet
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01CBV InstituteIndustryPractice Bulletin No. 2: International Valuation Glossary – Business Valuation
- 02Business Development Bank of CanadaGovernmentWhat is valuation
- 03Business Development Bank of CanadaGovernmentBusiness acquisitions: How to value a company
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