Tangible assets are those that have physical attributes, such as real estate, buildings, machinery, inventories, equipment, and IT hardware. Along with tangible assets, there are fixed operating assets that lack physical characteristics. They are referred to as intangible assets. They could include of things like goodwill, patents, copyrights, trademarks, and more.
Tangible assets (excluding land) may have a limited lifespan of anywhere from 5 years to 15 years before becoming obsolete. The characteristics of these assets affect their worth. Said values may decrease to zero or retain only a minimal amount of salvage value. In accounting terms, this decline is known as “Depreciation”. Similarly, Intangibles assets can also have definite or indefinite lifespans. In this case, the decline in value is known as “Amortization”.
Fundamental components of any firm are both tangible and intangible assets. Industries with a high proportion of intangible assets include technology, healthcare, entertainment and media. Since future benefits are unpredictable, intangible asset appraisal is more challenging than that of tangible asset. The value of a company’s core assets, whether tangible or intangible, has a significant impact on its valuation. Because every asset is distinct in its condition and utility, getting a professional evaluation is the best method to develop an accurate idea of value.
Today’s global business environment has increased the importance of transparent and robust valuations meeting regulatory, accounting, and financial reporting requirements. Assessing and justifying the value of assets is more complex and crucial than ever.
Valuation of Operating Fixed Assets is necessary in order for a business to properly account for tangible and intangible assets. This especially important for the transfer of a title in sale, as well as for the purchase of assets, lease structuring, obtaining credit, settlement of dues in times of distress, valuation for tax or other purposes, insurance, liquidation etc.
Purpose of Operating Fixed Assets
- Financial Reporting
- Asset Monitoring
- Tax Planning
- Impairment Testing
- Purchase Price Allocation (PPA)/Financial Accounting
- Corporate Restructuring
- Replacement Budgeting
Importance of Tangible Asset Valuation:
- Helps to determine if a company possessing primarily tangible assets is overvalued or undervalued. This is done by comparing the values of net tangible assets per share to a current share price of the company.
- Identifies a potential measure of liquidity, as a company with a high net tangible asset value has low risk in terms of liquidity. Therefore, tangible assets can serve as collateral to get short-term and long-term credit.
- Assists companies with accessing capital requirements for replacement or maintenance of existing tangible assets, and with investing for future growth.
Commonly used methods for Tangible Assets Valuation:
- Appraisal Method: An appraiser determines the fair market value of assets by considering their current condition, including wear and tear, expected lifespan, and degree of obsolescence.
- Replacement/Reproduction Cost: The replacement cost identifies the potential cost of purchasing an asset with the same functions as the one it’s intended to replace in line with updated materials and standards. The reproduction cost states the cost which might be incurred in order to create an exact replica of an asset, even with obsolete materials and standards.
- Liquidation/Salvage Value: An assessor determines the fair value of an asset when the company gets liquidated or if the asset is no more usable.
How can we support you?
Valuation of tangible assets for determining fair value, tax planning, financial reporting, insurance matters, solvency matters, bankruptcy filing, or any other legitimate purposes.
We provide physical verification of on-site assets for the purposes of transaction due diligence, audit services, and regulatory compliance.
Capital Budgeting and Accounting
We closely analyze existing accounting and asset utility in order to provide unbiased opinions on effective accounting and capital budgeting strategies.
Estimation of Asset Lifespan
With in-depth study, we can identify factors influencing the approximate lifespan of a tangle asset before depreciation may be expected to occur. This information is essential for the company’s financial and tax disclosures.
At Veristrat, our holistic approach to tangible assets valuation enables us to deliver accurate and timely results. We believe that assessment of Operating Fixed Assets requires a logical and measurable approach. Our dedicated team offers wide range of strategic solutions for tangible assets in addition to valuation, including physical audit, ascertaining useful life of assets, asset componentization etc.