Close-up on the cost approach

The cost approach to valuing a business starts with the book values of assets and liabilities reported on the balance sheet. However, book value is based on historic cost, rather than current market value. Plus, certain items, such as internally generated intangible assets and contingent liabilities, may not be reported on the balance sheet. So adjustments may be made to reflect a market value-based balance sheet. The cost approach may be preferred when valuing asset holding companies and small manufacturers that rely heavily on their “hard” assets. It may also be used as a sanity check for other valuation approaches. Contact us for more information.