ASSET-BASED VALUATION.
The asset-based valuation approach assumes that the value of a firm can be determined by estimating the value of its underlying assets. Three variations of this approach involve estimating (1) a modified book value for the assets, (2) the replacement value of the assets, and (3) the assets's liquidation value. The modified book value technique takes the firm's book value, as shown in the balance sheet, and adjusts it to reflect any obvious differences between the historical cost of an asset and its current value. For instance, marketable securities held by the firm may have a market value totally different from their historical book value. The same may be true for real estate. The second asset- based approach, the replacement value technique, attempts to determine what it would cost to replace each of the firm's assets. The third method, the liquidation value technique, estimates the amount of money that would be received if the firm ended its operations and liquidated the individual assets.