The weakness of the quick-and-dirty equity-book-value approach have led some to adopt adjusted book value, which attempts to restate the value of balance-sheet assets to realistic market levels. Consider the influence of adjusted book value in a leveraged buyout of a major retail store chain in the 1990s. At the time of the analysis, the store chain had an equity book value of $1.3 billion. Once its inventory and property assets were adjusted to their appraised values, however, the enterprise's value leaped to $2.2 billion - an increase of 69 percent.
When adjusting asset values, it is particularly important to determine the real value of any listed intangibles, such as goodwill and patents. In most cases, goodwill is an accounting fiction created when one company buys another at a premium to book value - that is, at a price higher than book value. The premium must be put on the balance sheet as goodwill. But to a potential buyer, the intangible asset may have no value.
When adjusting asset values, it is particularly important to determine the real value of any listed intangibles, such as goodwill and patents. In most cases, goodwill is an accounting fiction created when one company buys another at a premium to book value - that is, at a price higher than book value. The premium must be put on the balance sheet as goodwill. But to a potential buyer, the intangible asset may have no value.
No comments:
Post a Comment