Some people use replacement value to obtain a rough estimate of value. This method simply estimates the cost of reproducing the business's assets. Of course, a buyer may not want to replicate all the assets included in the sale price of a company. In this case, the replacement value represents more than the value that the buyer would place on the company.
The various asset-based valuation approaches described here generally share some strengths and weaknesses. On the up side, the approaches are easy and inexpensive to calculate. They are also easy to understand. On the down side, both equity book value and liquidation value fail to reflect the actual market value of assets. And all approaches fail to recognize the intangible value of an ongoing enterprise, which derives much of its wealth-generating power from human knowledge, skill, and reputation.
The various asset-based valuation approaches described here generally share some strengths and weaknesses. On the up side, the approaches are easy and inexpensive to calculate. They are also easy to understand. On the down side, both equity book value and liquidation value fail to reflect the actual market value of assets. And all approaches fail to recognize the intangible value of an ongoing enterprise, which derives much of its wealth-generating power from human knowledge, skill, and reputation.
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