Asset based valuation

Asset based valuation treats the company as a collection of assets rather than a going concern. Each asset is marked to its realisable value, liabilities are subtracted, and the residual is the value of the equity.

It becomes the primary method when the value genuinely is the assets: property companies, investment holding companies, shipping, and funds. For a property company, net asset value is simply the appraised portfolio less debt, and the shares are then discussed as a premium or discount to it.

It is also the right framework when the business is not a going concern. A company being wound up is worth what its assets fetch, so liquidation value displaces any earnings based method entirely.

For a healthy operating business it is a poor primary method and usually just a floor. Balance sheet assets are carried at historic cost, say nothing about future cash generation, and completely miss the intangible assets, brand, people and process, that produce the earnings.