The reason why Onyi Obiamalu Consults propose to clients for valuaton of the company’s fixed assets are as follows:
(1) To show the true rate of Return on Capital Employed (“ROCE”). Return on Capital Employed is a measure of business effectiveness and capital efficiency. ROCE is a function of profitability, how much profit a business has invested in operating assets to generate that level of profitability.
At an individual business level ROCE:
– allows comparision between business units of different size over time;
– shows where to invest further and where to cut back;
– shows whether it is worth borrowing further to invest;
– shows if expectations of shareholders are being met;
– indicates the maximum sustainable growth of a business; and
– is used to track whether or not a project is performing according to plan.
ROCE can be used to test operational efficiency, balance sheet management efficiency and the adequacy of return on total capital employed to make an assessment of a business’s perormane.
ROCE can be used to help management improve both the profitability and balance sheet managements. Improvements in these areas will lead to improvements in the Return on Capital Employed.
(2) To determine the going-concern value (value-in-use:
The going-concern value of a company is a value that assumes the company will remain in business indefinitely and continue to be profitable. This differs from the value that would be realized if its assets were liquidated because an ongoing operation has the ability to contine to earn profit, which contributes to its value.
(Liquidate means to convert assets into cash or cash equivalents by selling them in the open market).
Liquidate is also a term used in bankruptcy procedues in which an entity chooses or is forced by a legal judgement or contract to turn assets into a “liquid” form (cash).
(3) To show the market value of the assets which have considerably appreciated since their purchase such as land and buildings.
(4) To conserve adequate funds in the business for Replacement of fixed assets at the end of their useful lives.
(5) To negotiate fair price for the assets of the company before merger with or acquisition by another company. (Mergers and Acquisitions are transactions in which the ownership of companies, other business organizations, or their operating units are transferred or combined). If the Need aries.
(6) To determine the market value and forced sale value in case of sale; Or in other to obtain a loan from banks/ financial institutions by mortgaging its fixedd assets.
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