How to value a company?

Business valuation is a topic that has been extensively covered in both academic and practical publications. It often sparks debate, as the concept of a company’s value—just like the value of any other asset—can vary depending on the subjective perspective of the person conducting the valuation. Various guides and simplified models suggest that valuing a company can be done quickly and easily, much like assembling flat-pack furniture from Ikea.

We’re here to challenge that notion—because company valuation is not something that can be boiled down to a few-page template that works for every business scenario.

At Enterium, we specialize in business valuations, often as part of complex sale, M&A, or fundraising projects for our clients. In this article series, based on our real-world experience, we’ll cover the three most common valuation methods and share practical insights about when and how to use each approach.

In this first part, we’ll focus on the importance of defining the purpose of the valuation and explore the first method: the asset-based valuation approach.

Why defining the purpose of a valuation is key

Before diving into the details of valuation methodologies, it’s essential to understand one critical factor: the purpose of the valuation. This element is often overlooked or misunderstood. A company being liquidated (e.g., in bankruptcy) requires a different valuation approach than a business with a healthy, recurring revenue stream and strong cash flow. Even for the same purpose—say, a share sale—buyers and sellers may view the valuation differently, leading to different numbers, both of which could be technically correct.

In recent years, as more companies navigate succession planning, we’ve seen growing demand for education among SME owners in Poland on the different valuation methods and frameworks. Given the many variables that influence a company’s value, it’s easy to make mistakes at nearly every step—resulting in inaccurate valuations that can lead to disappointment, frustration, or failed negotiations, especially when dealing with professional buyers or investors.

The asset-based valuation method

The asset-based valuation method, as the name suggests, is based on a company’s assets. It involves assessing the net asset value—total assets minus liabilities. This includes valuing real estate, machinery, equipment, cash and other investments, inventory, and receivables, minus financial debt (loans, credit lines, leases, etc.) and operational liabilities such as accounts payable.

This method is particularly useful for companies with significant fixed assets, such as manufacturing firms, real estate developers, or property-holding companies. It is also commonly used in accounting-based valuations (e.g., for consolidated financial statements) and in administrative or legal proceedings where a quick, relatively straightforward estimate is required.

In practice, asset-based valuation is typically based on a company’s current balance sheet. The simplest version subtracts total liabilities and reserves from total assets to determine the company’s equity value—this is known as the Net Asset Value (NAV) method.

For a more accurate estimate, balance sheet items should ideally be adjusted to reflect their current market value. This approach is referred to as the Adjusted Net Asset Value (ANAV) method. Often, the book value of assets such as real estate significantly differs from their current market value—especially if they were acquired years earlier and are still recorded at historical cost. Similar adjustments may apply to inventory (e.g., for obsolete or slow-moving stock) or receivables (e.g., due to collection risks). These adjustments can result in a valuation that significantly deviates from simple book equity—but provides a much more accurate view of the company’s real market value.

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