The valuation of your company’s machinery and equipment is an important aspect of proper management. Done correctly, it can bring multiple benefits and shed light on potential opportunities for improvement and growth. But where do you begin valuing machinery & equipment – at book value? Production capabilities? Forecasted revenues? While there may be more than one correct method of determining equipment value, there are certainly many inefficient ways of conducting the process, which could result in missed opportunities like tax incentives, or a lower sale price.
At Appraisal Economics, we carry out a thorough and detailed valuation of machinery and equipment, guided by a number of steps, to ensure an accurate appraisal is conducted.
Identify the Assets to Be Appraised
Examples of machinery and equipment include but are not limited to furniture, fixtures, rolling stock, and production machinery. An appraisal may be done for each item individually, or as a production line, or even as a total facility.
Purpose of the Appraisal
There are several reasons for having an appraisal of your company’s equipment. It may be required for an acquisition, divestiture, financing, property taxes, or even insurance purposes, just to name a few.
Setting a valuation date for the appraisal is important, because the value of an asset can vary, based on the date that’s chosen. Depending on the nature of the asset, values can change in as little as three months.
Valuation Concepts and Approaches Utilized
As stated before, there are a number of ways to appropriately determine machinery & equipment values. The methodology chosen will depend on the purpose for the appraisal. Typical approaches may include:
- Fair Market Value in Continued Use
- Fair Market Value – Installed
- Fair Market Value – Removal
- Orderly Liquidation Value in Place
- Orderly Liquidation Value
- Forced Liquidation or Auction Value
- Salvage Value
- Scrap Value
- Insurance Replacement Cost
- Insurance Reproduction Cost
Type of Valuation Study
A valuation study can be done at two levels of detail
- Inventory – this includes a site inspection to check on the condition of the assets, and to record the make, model and serial number of the asset.
- Desktop – we do not inspect the assets, but instead rely on a fixed asset ledger that is provided to us by management, with the assumption that it is accurate. We will talk with management to get a better understanding on the condition of the assets, to assist us in the valuation process.
Type of Report
As set forth by the Uniform Standards of Professional Appraisal Practice (USPAP), there are three types of reports for machinery and equipment appraisals: Self-Contained, Summary, and Restricted Use. Each will consist of varying levels of detail, information and content.
As you consider the various options for valuing your business’s machinery & equipment, hopefully your own specific purpose and strategy is coming to light. Producing such an appraisal can entice investors, satisfy shareholders, influence insurance coverage prices, and can offset taxes – with multiple other benefits to help you reach your business goals.
At Appraisal Economics, we’ve helped countless companies, ranging from Fortune 500 companies to smaller businesses, achieve their goals by conducting thorough and insightful valuations of their machinery and equipment. Contact us to learn more.