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Redundant Assets in Business Valuations

February 18, 2016

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When determining the en bloc fair market value of a company, business valuators calculate the enterprise value (i.e., what the business operations are worth) and add any redundant assets, net of any debt.

Real Estate

Enterprise value is the total value of all operating assets of a business, including net working capital, fixed assets and intangible assets. After, redundant assets (net of debt) are added because these assets are not necessary to the core or ongoing operations of a business. As redundant assets are not vital to business operations, the valuation method used to determine the enterprise value may not attribute any value to these redundant assets, even though these assets may have realizable value in and of themselves.

An example of a redundant asset can include real estate that a company owns. Real estate is included because companies do not necessarily need to own their office space to operate and may not directly rely on owning its real estate to generate revenues. Therefore, the business valuator will often make adjustments to reflect the redundant asset in order to determine the fair market value of a company.

Another example of a redundant asset would often be marketable securities, assuming a company does not operate in the marketable securities and trading industry. These marketable securities do not form the core business operations of a company, and similar to the real estate example above, are adjusted when determining a company’s fair market value.

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