Tangible assets are assets with the physical form such as land and building, plant and equipment, inventory, IT hardware etc. Intangible assets are non-physical items such as goodwill, patent, copyrights and trademarks. Value of a tangible asset diminishes as it is used, while intangible assets have ability to appreciate in value as it reaches its expiration. Intangible assets can have definite and indefinite useful life depending upon type of asset. Industries with high proportion of intangible assets include technology, healthcare, and entertainment and media etc. Valuation of intangible assets is difficult as compared to valuation of tangible assets due to the uncertainty of future benefits.
Tangible assets are the fundamental part of most business as the company’s valuation is highly influenced by value of its underlying tangible assets. Their valuation requires professional judgement and expertise as each asset is unique in its condition and utility.
Today’s global business environment has increased the significance of transparent and robust valuations that meet regulatory, accounting and financial reporting requirements. Assessing and justifying values of assets have become more crucial and complex as valuations of tangibles is based on asset characteristics.
At Veristrat, our holistic approach to tangible assets valuation enable us to deliver accurate and timely results. Our experienced professionals not only provide you with the formulaic calculations. We strive to gain detailed understanding of business, its activities, industry, and other factors affecting the valuation of tangible assets.
Purpose of Tangible Assets Valuation
- 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 the company is overvalued or undervalued by comparing value of net tangible asset per share to current share price of the company.
- Tangible assets can form a measure of liquidity as the company with high net tangible asset value has low risk in terms of liquidity. Therefore, tangible assets serves as collateral to get short term and long term credit.
- Helps companies to access the capital requirements for replacement or maintenance of existing tangible assets and investment for future growth.
Commonly used methods for Tangible Assets Valuation:
- Appraisal Method: Appraiser determines the fair market value of the assets by considering current condition of the asset including wear and tear, expected life and degree of obsolescence.
- Replacement/ Reproduction Cost: Replacement cost states the cost which is incurred to create or acquire the same asset with same utility using the modern materials and standard. Whereas reproduction cost states the cost which is incurred to create exact replica of the asset with same utility, i.e. even with obsolete materials and standard.
- Liquidation/ Salvage Value: Assessor determines the fair value of an asset when the company gets liquidated or if the asset is no more usable.
How we support you?
Our experienced and dedicated team provide fundamental and technical assistance pertaining to tangible assets:
- Valuation: Valuation of tangible assets for determining fair value, tax planning, financial reporting, insurance matters, solvency matters, bankruptcy filing or any other legitimate purposes.
- Physical Verification: 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 and review existing accounting and asset utility to provide unbiased opinions on effective accounting and capital budgeting strategies.
- Estimation of Useful lives: We provide reasonable and fair time period estimation over which depreciation of the tangible asset occurs through in-depth study of factors affecting their useful life span for the purposes of company’s financial and tax disclosures.
Valuation of tangible assets is important for the businesses to properly account for tangible assets at the time of transfer of title in sale and purchase of assets, lease structuring, obtaining credit, settlement of dues in times of distress, valuation for tax or other purposes, insurance, liquidation etc.
At Veristrat, we believe that assessment of tangible valuation requires a logical and measurable approach. Our dedicated team offers wide range of strategic solutions for tangible assets like valuation, physical audit, ascertaining useful life of assets, asset componentization etc.