Report

Report: Asset valuations in times of financial uncertainty

How to manage financial risk with tangible asset valuations

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By Simon O’Brien ,

Head of Valuations – Marsh Advisory

07/05/2024

Learn how tangible asset valuations can contribute significantly to an organisation’s value, performance, strategic direction at times of financial uncertainty.

Tangible assets can contribute significantly to an organisation’s value, performance and strategic direction.

As businesses emerge from the COVID-19 pandemic and attempt to shore up their cash and liquidity, many are faced with new risks ranging from events such as the recent historic floods in NSW & QLD, labour challenges, the spike in energy prices and supply chain disruptions exacerbated by the war in Ukraine.

What’s more these risk factors are now compounded by surging inflation – having accurate and reliable asset values, along with the proper disclosure of these, is now more crucial than ever for businesses.

What is a tangible asset valuation?

The valuation of tangible assets is the process of assessment, evaluation and calculation of a company's physical assets to determine the value for accounting compliance, insurance, legal, financial, regulatory or transactional purposes. Land and buildings, plant and equipment, infrastructure, contents, mobile equipment/yellow goods are all examples of tangible assets that require valuations for varying purposes.

Why are tangible asset valuations important, particularly during economic uncertainty?

Tangible asset valuations are often utilised to assist organisations with their financial reporting, asset management, strategic, fiscal and legislative requirements, including in times of significant change.

The economic volatility associated with inflation will likely place many companies in financial distress and lead to increased requirements regarding the accurate disclosure of asset values. During times of change and uncertainty, it is imperative that a company’s tangible assets values are correctly identified. Significant change within the business can lead to the requirement of valuations for numerous purposes including legal, accounting, regulatory, financial or transactional requirements.

In this report, Marsh’s tangible assets valuation specialists examine how valuation can play a key role in each phase of the restructuring and turnaround lifecycle, including:

Phase 1: Financial uncertainty

Impairment testing
Financial reporting – including materiality
Exchange rate impacts
Strategic decision-making
Mergers, acquisitions and disposals – including purchase price allocation, tax consolidation, pre-valuation assessment

Phase 2: During administration or receivership

Market valuations
Liquidation values

Phase 3: Emerging from uncertainty

Asset register reconciliations and review
Valuations for insurance purposes
Tax depreciation schedule

This publication is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Marsh shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Any statements concerning actuarial, tax, accounting, or legal matters are based solely on our experience as insurance brokers and risk consultants and are not to be relied upon as actuarial, accounting, tax, or legal advice, for which you should consult your own professional advisors. LCPA 22/289