When the value sits in the plant, the fleet or the freehold rather than in goodwill, the question is what those assets would fetch and what is owed against them.
The asset approach values a Melbourne business as its assets less its liabilities, with every item restated from the figure in the accounts to what it would fetch today. It leads for plant-heavy or thin-margin operators, holding entities and businesses being wound up, and it sets the floor beneath every other valuation.
Every asset and liability is taken from its book figure to its market value: land and buildings, plant and vehicles, stock, debtors, contingent liabilities and the tax that would fall due on any gain. The gap between book and market is the whole exercise. A press in a Dandenong South workshop that was written off years ago still has a resale price, and a prime mover bought last year on finance may be worth less than what is owed on it.
The tangible assets are valued first, then any earnings above a fair return on those assets are capitalised to put a figure on goodwill. It sits between asset and income thinking, and it is used sparingly, with its assumptions spelled out, because a small change in the assumed fair return moves the goodwill figure a long way.
A business that keeps trading should be worth at least what its assets would realise, so the adjusted net asset figure is calculated in every engagement, not only where it leads. When an earnings-based result comes in below it, the report says so plainly, because that usually means the business is not earning a fair return on the capital tied up in it, and a buyer would rather have the assets than the business.
Consider an illustrative sheet metal fabricator in Dandenong South. The plant register shows presses, a laser cutter and a folding line carried at a fraction of what they would sell for, while the factory freehold, held in the same company, has not been revalued since it was bought. An independent plant and machinery valuation replaces the book figures with market ones, the property is valued separately, and equipment finance, chattel mortgages and any balloon payments are deducted in full on the way from enterprise value to equity value. If the freehold is to stay with the company and the shares are sold, the valuer flags that the buyer may face landholder duty under the Duties Act 2000 (Vic), assessed by the State Revenue Office Victoria, as a matter for the accountant to price into the deal structure rather than something that changes the value of the assets.
A Laverton North transport fleet raises the same questions in a different form: prime movers and trailers valued at what the used market would pay, not at written down value; the depot lease or freehold; and the finance sitting behind almost every vehicle. The contracted work, if any, is then tested on the income approach to see whether it adds goodwill above the fleet's realisable value.
Plant-heavy or thin-margin businesses: fabricators and food processors in Dandenong South, transport and warehousing operators in Laverton North, Truganina and around the Port of Melbourne, civil contractors working the Wyndham and Casey growth corridors, together with property and investment holding entities and any business being wound up.
For each of these the income approach is still run, to test whether the earnings support anything above the net asset figure, and the market approach is applied where sales evidence exists. The report explains why the asset result was given the greatest weight, or why it was overtaken.