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CS Professional · Corporate Restructuring, Valuation and Insolvency · Overview of Business Valuation

Sundaram Textiles Ltd has been profitable for many years, owns plant and land, and is not expected to be wound up. A valuer wants a method that estimates value from the net worth of what the company owns less what it owes, using fair values of assets and liabilities. Which approach is the valuer applying?

The valuer is applying the asset approach. This approach derives value from the fair value of the company's assets minus its liabilities, rather than from projected cash flows or comparable company prices.

  1. AAsset approachCorrect
  2. BIncome approach
  3. CMarket approach
  4. DRelative valuation using peer multiples

Explanation

The asset (cost) approach values a business by taking the fair value of assets less liabilities. The income approach relies on future earnings or cash flows, and the market approach relies on prices or multiples of comparable firms. None of these is described in the facts.

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