Book Value Book value is a balance sheet approach to value. One simply computes the book value of shares. As we discussed earlier in the class, there are many aspects to value that are not captured in book value. This cost will normally be higher than the book value, but still doesn't take into account the value of the future. What would it cost to recreate the company Takes into account the fact that a company is worth more than the sum of the parts Still does not reflect going concern value Liquidation Value Liquidation value is used when the firm is assumed to be worth more dead than alive.
Liquidation value depends on the length of time assumed for liquidation.
The market approach is the same approach we used to determine the cost of capital for a privately held firm. The market approach assumes the market is relatively efficient in valuing assets and attempts to discern how the market would value a company 'similar' to the company in question. This approach is widely used in real estate whereby to determine the value of your house you look at the prices at which similar houses have sold per square foot. The real trick to using this method is making sure that the asset in the market is truly similar to the asset in question. Market multiples are basically ratios which relate value to some economic benefit or measure of economic performance.