What Is the Adjusted Net Asset Method?
The adjusted net asset method is a business valuation technique that changes the stated values of a company's assets and liabilities to reflect their estimated current fair market values better. By adjusting asset or liability values up or down, the net effect offers values that can be used in going-concern assessments or liquidation scenarios.
This method may also be called the "asset accumulation method."
Adjusted Net Asset Method Explained
In certain cases, it may be difficult to assemble an accurate business valuation using market or income-based approaches. These methods are common in dividend discount, capitalization, and cash flow models. The alternative method focuses on assets and liabilities of a business enterprise.
The adjusted net asset method would include tangible and intangible asset during the adjustment process. Also included are off-balance sheet assets and unrecorded liabilities, such as leases or other notable commitments. The difference between the total fair market value of the adjusted assets and the total fair market value of the adjusted liabilities is the "adjusted book value" (what the business is considered to be worth).
According to Sean Saari, CPA/ABV, of the accounting firm Skoda Minotti, consideration of the adjusted net asset method is typically most appropriate when:
- Valuing a holding company or a capital-intensive company;
- Losses are continually generated by the business; or
- Valuation methodologies based on a company’s net income or cash flow levels indicate a value lower than its adjusted net asset value.
"One needs to keep in mind that when income or market-based valuation approaches indicate values higher than the Adjusted Net Asset Method, it is typically dismissed in reaching the concluded value of the company," Saari wrote in February 2017. "This is because income and market-based valuation approaches provide a much more accurate reflection of any goodwill or intangible value that the company may have."