Asset-Based Approach

DEFINITION of 'Asset-Based Approach'

A type of business valuation that focuses on a company's net asset value, or the fair-market value of its total assets minus its total liabilities. The asset-based approach basically asks what it would cost to recreate the business. There is some room for interpretation in the asset approach in terms of deciding which of the company's assets and liabilities to include in the valuation, and how to measure the worth of each.

BREAKING DOWN 'Asset-Based Approach'

The asset-based approach, also called the asset approach, is one of three main approaches used to value businesses; the other two are the market approach, which looks at what similar businesses are worth, and the income approach, which estimates how much money the business might generate in the future. Each approach will produce different values, and one will be more appropriate than the others given the type of company being sold.

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