Valuation method
Cost approach: asset-based valuation
Values a company by what its assets are worth, or what it would cost to rebuild them, less what it owes.
When to use it
- The company holds significant property, equipment or inventory
- It is a holding or investment company
- You need a floor for the other approaches
What you need
- A list of assets with quantities and unit costs
- Physical, functional and external depreciation
- Assets at book value with market adjustments, intangibles and liabilities
How it works, step by step
- 1
List the assets
Record each asset with its quantity and the unit cost to replace or reproduce it.
- 2
Deduct depreciation
Reduce each cost for physical wear, functional obsolescence and external factors.
- 3
Subtract liabilities
For net asset value: assets at market value plus intangibles, less liabilities.
Worked example
Net asset value for a company with assets of 30 at book value. Its property is worth 3.5 more than book, it has intangibles of 2.0, and liabilities of 12. Amounts in SAR million.
| Assets at book value | 30.00 |
|---|---|
| Market adjustment | +3.50 |
| Intangible assets | +2.00 |
| Less liabilities | 12.00 |
| Net asset value | 23.50 |
Replacement and reproduction cost come from the asset list instead.
Methods in TaqeemTech
Use any of the three methods and set their weights.
Replacement cost
The cost of a modern equivalent of each asset, less depreciation, plus additional costs.
Reproduction cost
The cost of an exact copy of each asset, less depreciation, plus additional costs.
Net asset value
Assets at market value plus intangibles, less liabilities.
Strengths · Limitations
Strengths
- Based on asset values that can be verified
- Useful when earnings are low or unpredictable
- Gives a floor for the other approaches
Limitations
- Misses value from future growth and intangibles not on the books
- Revaluing assets may need specialist input
- Rarely suits service or technology companies on its own
How TaqeemTech helps
- Up to 100 assets, each with three types of depreciation
- Replacement and reproduction cost side by side
- Each method weighted within the approach
Common questions
Replacement prices a modern asset with the same function; reproduction prices an exact copy. Replacement is usually lower and more common.
This guide explains general valuation practice and how TaqeemTech applies it. It is not investment, legal or tax advice. The valuation opinion belongs to the firm and the valuer who approve the report.
Prepare your next valuation in TaqeemTech
Sign up in minutes and invite your team for free.