When the worth of a business sits in its machines, vehicles or land more than in its goodwill, the starting point is what those assets would realise and what is owed against them.
The asset approach values a Wollongong business at the market value of all it owns less all it owes, moving each balance sheet item from its accounting figure to a current realisable price. It leads for capital-intensive or thin-margin operators, holding entities and businesses being wound up, and it marks the minimum below which no other result should fall.
The valuer values the tangible assets first, then capitalises any earnings above a fair return on those assets to reach goodwill. The method links asset-based and earnings-based thinking, and every assumption has to be shown, because a small shift in the assumed fair return moves goodwill by a large amount.
Each asset and liability moves from book to market value: land and buildings, plant and vehicles, stock, receivables, contingent liabilities and the tax that would arise on any gain. The distance between book and market is where the effort goes. A fully written-off press brake in a Port Kembla workshop can still sell for good money, while a refrigerated van bought on finance last year may be worth less than the loan secured over it.
Adjusted net assets are worked out on every engagement, whether or not they lead, because a going concern should not be worth less than its assets would raise. If an earnings-based result lands below that figure, the report states it plainly, since it normally means the business earns too little on the capital it employs and a buyer would prefer the assets to the business. In a shareholder dispute in the District Court at Wollongong or the Supreme Court of New South Wales in Sydney, that comparison is among the first things an opposing expert tests.
Take an illustrative steel fabricator at Port Kembla serving maintenance and shutdown work. Its asset register carries a plasma table, a press brake and an overhead crane at a small fraction of resale value, and the workshop freehold, held by the same company, still sits at its purchase price. A specialist plant and machinery valuation substitutes market figures for the book ones, the land is valued against sales of similar industrial property nearby, and equipment loans, chattel mortgages and balloon payments come off in full when moving from enterprise value to equity value. If the freehold stays in the company and the shares are sold, the valuer flags that landholder duty under the Duties Act 1997 (NSW), administered by Revenue NSW, may need to be considered by the accountant when structuring the deal; it is not an adjustment to asset value.
A trade business based at Unanderra, with a fleet of utes and trailers and a small plant yard, raises the same questions in a different form: vehicles at used-market prices rather than written-down values, the yard lease or freehold, and the finance attached to nearly every vehicle. Its service contracts are then tested under the income approach to see whether they justify goodwill above what the fleet would realise by itself.
Capital-heavy or thin-margin operators: fabricators and component makers in the Port Kembla, Unanderra and Dapto industrial areas, food processors and bakeries, freight and warehousing operators serving the port and its motor vehicle import trade, construction and civil contractors working the western Illawarra housing growth, along with property and investment holding entities and any business being wound up.
In each of these the income approach still tests whether earnings support a value above net assets, and the market approach is applied wherever sales evidence exists. The report explains why the asset result carried the most weight, or why another result overtook it.