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Asset Valuation – Learn The Various Methods
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Every business owner needs to constantly monitor the total worth of all his/her commercial assets at any time. While there is no dearth of specialist agencies that undertake asset valuation in Kolkata for clients, it makes practical sense to know a bit about the methods that might be adopted by them, for gauging the total value of your assets and liabilities. Over here, readers will be given a brief overview of the various asset valuation techniques:
a. Standard cost technique – This method for asset and property valuation is not often used at present, but you should know about it all the same. Under this theory, the net worth of the assets possessed by a business organization is calculated on the basis of the cost of a standard/base/threshold level of assets (pre-specified by the company). In most cases, this method leads to slight overestimation of company valuation figures.
b. Economic use technique – This brings to the fore the importance of brand valuation in the field of asset management and assessment. Established corporate brands are treated as important intangible assets, which ensure a loyal pool of customers, and steady flow of revenues over time. Estimates about income and returns in the foreseeable future can also be accurately gauged by the economic use technique. The more usable your company’s assets are, the higher your overall business valuation is likely to be.
c. Base stock method – As the name of this method suggests, the calculations here are based on a pre-determined level of base stock assets in a company. The current prices of assets are indexed against the value of the base stock, to arrive at the final valuation figures. To maintain accuracy and reliability, the inflation factor has to be discounted for.
d. The market method – For asset and intellectual property valuation, this market method is easily the most popular one. Any qualified valuer in Kolkata would be familiar with the method via which the value of assets can be estimated by the sale, transfer or any other form of transaction of identical (or similar) assets in the financial markets. Confusions might crop up while deciding which assets can be actually compared with the ones that have to be analyzed at your organization. The market valuation method loses much of its reliability, when it comes to estimating the worth of intangible assets.
e. Average cost technique – While rather simplistic in its methodology, the average cost method comes in handy for the valuation of assets/property that cannot be segregated under different categories. Examples of such cases would include confusions between normal and preference stocks, or the lack of clear demarcation between residential property and tea garden valuation. The total cost of the entire group of assets is pooled first, and then the figure is divided by the number of assets – to arrive at the per capita value figure.
f. The income method – This method of financial assessment is often used to gauge the present value of prospective investments, as well as for bank valuation reports. The initial investment amount, the periodic cash-flows (expected), and the risk factor are all taken into account, to generate a discounted final value amount for financial assets. All types of economic benefits are included in the future payoffs from an asset, while the risk-factor includes both personal and market risks. It is of essence to ensure that the replacement value of the assets is not double-counted into the future income streams.
g. Net realizable value technique – Professional asset valuer agencies can use this approach to arrive at the overall value of each of your assets. The method is pretty straightforward – the total revenue that can be generated by the immediate sale of all the assets in the same market is estimated, and that ‘realizable’ amount is cited as the valuation. There would be certain expenses associated with organizing and conducting such asset disposal and sale, and that has to be subtracted from the potential revenues. At the time of purchasing a new asset, this valuation method is often applied, to find whether its price figure is justifiable.
h. Relief from Royalty technique – There are certain licensing benefits and royalties to be had from owning an asset – and these are the principal factors under consideration in this method. During property or land valuation, the amount of royalty relief that your company gets is taken into account, along with the expected income/return stream that the corresponding asset is expected to generate in future. Among all the methods for the valuation of intangible assets, the Royalty Relief approach is regarded to be the most vague and confusing.
i. Technology Factor Method – If you wish to find out the extent to which application of sophisticated technology is bolstering your company valuation figures, this is the method to opt for. Via this technique, maximum limits for the overall business worth is set – with the limit being set at higher levels for firms that are more technology-dependent than their counterparts. Probable flaws and misuse of technology can also be easily detected through this relatively new valuation method.
For property and asset valuation in Kolkata, the replacement value method is pretty much in vogue as well. Discrepancies in the reported worth of the same set of assets can generally be attributed to the application of different methods to assess them. Professional valuers would handle these asset management tasks, but you should also have some idea about them!
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