ACCT 301 Lecture Notes - Standard Cost Accounting, Historical Cost, Share Capital
Document Summary
Breakup valuation is based on the forced sale of individual assets in the second hand market. Basically, the current values of all assets are added up together. The disadvantages: ignores that the company is a going-concern, values on assets are estimates, sale value of fixed assets is hard to ascertain. Book value: original share capital + reserves the advantages: the figures are factual as they are based on historical cost, they are easily obtainable, the figures for debtors and non-equity liabilities are accurately reflected. Replacement cost: replacement cost of assets less: all liabilities. The disadvantages: the cooperation of the company is needed to identify assets, intangible assets such as goodwill aren"t recognized, replacement cost may overvalue the company. Earnings yield 100 = annual earnings yield x 100 or 1 x 100. The value of a company on the earnings-yield basis is the value of the stream of profit, or earnings which the company is expected to generate.