5.19 Tangible asset backing (TAB)
When calculating enterprise value, operating earnings should be matched with the tangible net assets that back such earnings. In calculating goodwill based on operational cashflows, only the Tangible asset backing (TAB) should be considered. The table below is an simple illustration of a TAB calculation. Refer to the notes for explanations of adjustments made.
TAB represents the fair market value of the tangible assets supporting the business enterprise.
Generally speaking, the intangible value (i.e. Goodwill) is the difference between the total value of the enterprise (calculated for example by capitalizing free cash flows) and the value of the TAB.
Although redundant assets are removed when calculating the value of the TAB of the enterprise, they are added back when calculating the total equity value of the business.
Contact MVI to discuss how we analyse and adjust the value of tangible assets used in an enterprise.