of assets and a business. A businessor a company is an
ongoingentitywithassetsthatitalreadyownsandassetsit
expectstoinvestinthefuture.Thiscanbebestseenwhenwe
look at the financial balance sheet (as opposed to an
accountingbalancesheet)foranongoingcompanyinFigure
1.1.Notethatinvestmentsthathavealready beenmadeare
categorizedasassetsinplace,butinvestmentsthatweexpect
the business to make in the future are growth assets.
FIGURE 1.1Simple View of a Firm
Afinancialbalancesheetprovidesagoodframeworktodraw
out thedifferences between valuing a businessas a going
concernandvaluingitasacollection ofassets.Inagoing
concernvaluation,wehavetomakeourbestjudgmentsnot
only on existing investments but also on expected future
investmentsandtheirprofitability.Whilethismayseemtobe
foolhardy,alargeproportionofthemarketvalueofgrowth
companiescomesfromtheirgrowthassets.Inanasset-based
valuation, we focus primarily on the assets in place and
estimatethevalueofeachassetseparately.Addingtheasset
values together yields the value of the business. For
companies with lucrative growth opportunities, asset-based
valuations will yield lower values than going concern
valuations.