Theapproachthatweusetovalueabusinesswilldependon
how marketable its assets are, whether it generates cash
flows, and how unique it is in terms of its operations.
Marketability of Assets
Liquidation valuation and replacement cost valuation are
easiesttodoforfirmsthathaveassetsthatareseparableand
marketable. For instance, we can estimate the liquidation
valueforarealestatecompanybecauseitspropertiescanbe
sold individually and we can estimate the value of each
property easily.The same canbe said abouta closed-end
mutual fund. Attheother extreme,considera brand-name
consumerproduct companylike Gillette. Itsassets arenot
only intangible but difficult to separate. For instance, we
cannot separate therazorbusinesseasily from theshaving
cream business, and brand namevalue is inherent in both
businesses.
Wecanalsousethissameanalysistoseewhytheliquidation
orreplacementcostvalueofahigh-growthbusinessmaybear
littleresemblancetotruevalue.Unlikeassetsinplace,growth
assetscannotbeeasilyidentifiedorsold.Figure18.2presents
the relationship between marketability and valuation
approaches.
FIGURE 18.2Asset Marketability and Valuation Approaches