Tangible Asset Valuation: What You Need To Know
Posted on: February 4, 2020
Multiple factors contribute to a company’s value, from its people and products to the physical property owned. The term “tangible fixed assets” refers to physical pieces of property or equipment that a company owns and uses to generate income. There are times when a business needs to determine the specific value of its fixed assets, which is where valuation (appraisal) comes in.
This article covers all aspects of tangible asset valuation: what it is, why it matters, and tips for ensuring it’s done correctly.
Tangible Asset Valuation: What It Is & Why It Matters
Tangible asset valuation is the appraisal of a company’s physical property to determine economic value. Tangible assets can include working capital, land, buildings, and real (or “business personal”) property like machinery and equipment. (Tweet this!) These assets require annual appraisals for property tax purposes, as well as in the event of a merger or acquisition (M&A).
Not only is accurate valuation necessary for tax purposes, but getting it wrong can be costly. Inaccurate valuation can impact taxes and fees owed, hinder your negotiating power with tax assessors, and skew purchase price allocation (PPA) results during an M&A. In some cases, particularly when investors are involved, it can even result in litigation.
Talk to one of our experienced advisors about your company’s tangible asset valuation needs and how we can help.
3 Tips For Ensuring Accurate Valuation Of Tangible Assets
1. Understand the assignment.
The first step to tangible asset valuation is to determine what assets you are valuing and for what purpose. Appraising tangible assets is different for a purchase price allocation than it is for property taxes. The purpose of the assignment determines who will review it and which standard of value should be used. It’s also likely to drive how conservative you are with the assumptions made in your valuation.
2. Review your financial reports.
It’s important to review your company’s financial reports and answer some important questions. What assets has the company invested in this year? What is the property in question and what does it represent for the business? It is often easier to talk with the internal audit team and to review the financial data alongside an auditor or someone with asset classification expertise.
3. Perform a financial analysis.
Business personal property is valuable because it generates a financial return. Tangible asset valuation is an opportunity to determine if that return justifies the full value of your company’s property, which requires sophisticated financial analysis including a review of profits by business line, potential for company growth, and customer turnover rates. This review may help you come to the conclusion that a particular product or service area and the associated tangible assets are not generating a large return.
Do you need help making sense of tangible asset valuation?
If you’re tasked with managing tangible asset valuation to meet your company’s annual property tax requirements, we can help. Valentiam is comprised of independent valuation specialists entrusted by the world’s leading corporations. We provide clients with expert value opinions and support our findings to negotiate with tax assessors.
If your company requires expert valuation of business assets, let’s talk. Schedule a discovery call with one of our seasoned advisors to learn how we can help.