What is asset-based valuation?
Net assets restated at realistic values. It sets the floor for most businesses and the actual price only where earnings are weak or the assets are the business.
Total assets at realistic market values, less liabilities. For most trading businesses it establishes the floor rather than the price — nobody sells a profitable business for less than they could get by liquidating it.
Where it becomes the actual answer
- Property-holding companies, where the building is the business
- Asset-heavy operations — plant, fleet, specialised equipment
- Businesses earning less than the return on their own assets
- Loss-making businesses being wound down rather than sold as a going concern
Book value is not market value
The balance sheet is a historical record, not a valuation. Three adjustments do most of the work:
| Item | Common adjustment |
|---|---|
| Property | Usually well above book after years of depreciation |
| Plant and equipment | Often below book — depreciation schedules rarely match reality |
| Stock | Written down for anything genuinely unsellable |
| Receivables | Written down for what will not be collected |
Why it matters even when it is not the answer
Because it is the floor, and knowing the floor changes how you negotiate. A business earning €200,000 on €1.8M of property is not worth 4× earnings — it is worth the property, and any buyer will see that immediately.
How to value a business covers running this alongside the other two methods, and DCF valuation explained covers the method that most often disagrees with it.