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ACCA Strategic Professional · Advanced Financial Management · Valuation for acquisitions and mergers

Which statement about the net asset valuation method when valuing a target for acquisition is correct?

Net asset valuation usually gives a floor value for a going concern. It values identifiable assets less liabilities and so omits internally generated goodwill, brands and future earning power, making it unsuitable for asset-light, high-growth businesses.

  1. AIt captures the value of internally generated goodwill and brand strength fully
  2. BIt is most appropriate for valuing a profitable, growing service business with few tangible assets
  3. CIt usually gives a floor value for a going concern, because it ignores the earning power of unrecognised intangiblesCorrect
  4. DIt produces a value that is always higher than a P/E-based valuation

Explanation

Asset-based methods value what is on the statement of financial position (adjusted), so they tend to omit internally generated intangibles and future earnings power. This makes the result a minimum or floor for a going concern. The other statements are false or reverse the method's weaknesses.

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