# Asset-Based Valuation: How to Calculate and Adjust Net Asset Value

![Asset-Based Approach](https://www.investopedia.com/thmb/rKh7B8zco1S52wPuaMz9XpyLSE4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Asset-BasedApproach_Final_4201377-7bf46aa03f68432aa1ab08bded08ca9d.png)

*— Investopedia / Paige McLaughlin*

## What Is an Asset-Based Approach?

An asset-based approach focuses on valuing a business by calculating its net asset value, derived from subtracting liabilities from assets. This method provides flexibility in valuation by allowing considerations of market values and intangibles, crucial for stakeholders interested in comparisons, sales, or liquidations.

### Key Takeaways

*   An asset-based approach focuses on calculating a company's net asset value by subtracting liabilities from total assets.
*   Analysts often adjust asset-based valuations by considering market values and intangible assets not captured fully on a balance sheet.
*   The method is particularly useful for companies without a clear equity value, providing an alternative valuation measure.
*   Adjusted asset-based valuations may require re-evaluating both assets and liabilities to align them with fair market values.

## Understanding the Asset-Based Approach

Identifying and maintaining awareness of [the value of a company](https://www.investopedia.com/terms/a/adjusted-net-worth.asp) is an important responsibility for financial executives. Overall, stakeholder and investor returns increase when a company's value increases, and vice versa.

There are a few different ways to identify a company's value. Two of the most common are the equity value and [enterprise value](https://www.investopedia.com/terms/e/enterprisevalue.asp). The asset-based approach can also be used in conjunction with these two methods or as a standalone valuation. Both [equity value and enterprise value](https://www.investopedia.com/ask/answers/111414/what-difference-between-enterprise-value-and-equity-value.asp) require using equity to calculate. If a company does not have equity, analysts may use the asset-based valuation as an alternative.

Many stakeholders will also calculate the asset-based value and use it comprehensively in valuation comparisons. The asset-based value may also be required for private companies in certain types of analysis as added due diligence. Furthermore, the asset-based value can also be an important consideration when a company is planning a sale or [liquidation](https://www.investopedia.com/terms/l/liquidation.asp).

> **Important**
>
> The asset-based approach uses the value of assets to calculate a business entity's valuation.

## How to Calculate Asset-Based Value

In its most basic form, the asset-based value is equivalent to the company's book value or [shareholders' equity](https://www.investopedia.com/terms/s/shareholdersequity.asp). The calculation is generated by subtracting liabilities from assets.

Often, the value of assets minus liabilities differs from the value reported on the [balance sheet](https://www.investopedia.com/terms/b/balancesheet.asp); for example, asset-based valuations can provide latitude for using market values rather than balance sheet values. Analysts might include [intangible assets](https://www.investopedia.com/terms/i/intangibleasset.asp) in valuations, whether they are on the balance sheet or not.

## Adjusting Net Assets for Accurate Valuation

One of the biggest challenges in arriving at an asset-based valuation is adjusting [net assets](https://www.investopedia.com/terms/n/nav.asp). An adjusted asset-based valuation seeks to identify the [market value](https://www.investopedia.com/articles/investing/110613/market-value-versus-book-value.asp) of assets in the current environment. Balance sheet valuations use depreciation to decrease the value of assets over time. Thus, the book value of an asset is not necessarily equivalent to the [fair market value](https://www.investopedia.com/terms/f/fairmarketvalue.asp).

Other considerations for net asset adjustments may include certain [intangibles](https://www.investopedia.com/terms/i/intangibleasset.asp) that are not fully valued on the balance sheet or included on the balance sheet at all. Companies are often not allowed to include the value of their brand on their balance sheet because of difficulties calculating a reliable cost or value of the brand name. However, since an adjusted asset-based approach looks at what a company could potentially sell for in the current market, these intangibles are important to consider.

In an [adjusted net asset](https://www.investopedia.com/terms/a/adjusted-net-asset-method.asp) calculation, adjustments to liabilities can also be made. These changes can increase or decrease liability values, affecting the net assets.

## The Bottom Line

An asset-based approach to business valuation determines a company's net asset value by subtracting liabilities from assets. This method can be used alongside other valuation techniques or as a standalone option when equity is unavailable. Adjustments for market value and intangible assets ensure a more accurate reflection of current worth. Stakeholders and financial executives benefit from understanding this approach as it plays a crucial role in due diligence, sales, and liquidation scenarios. Using market values rather than book values provides a clear picture of asset worth, particularly in changing market conditions.