Alongside the income approach (DCF) and the market approach (multiples), the asset approach values a business by valuing what it owns. In this session, Prof Damodaran looks at the different ways of doing that and when each makes sense.
- Accounting book value and why it rarely reflects what assets are worth today
- Liquidation value and replacement cost as alternative measures of asset value
- Sum-of-the-parts valuation for conglomerates and holding companies, valuing each business separately and adding them up
Together with the DCF and relative valuation sessions in this section, it completes the picture of the three main valuation approaches. It is especially useful for property-heavy businesses, investment holding companies and situations where a business may be wound down.