Final Output

Asset-Based Valuation

Presented by:

Coching, Honey Danielle

Marilag, Albert

Olleta, Rebekah Grace

Pastor, Kaxandra Edrea

Rangkhawong, Nathalie Mei

Rapada, Janine

Presented to:

Dr. Cresenciana Bundoc, CPA

Asset-Based Valuation

Asset

- An asset is something that an entity owns that can be used to generate income
or provide future benefits.
- According to the industry, assets have been defined as transactions that would
yield future economic benefits as a result of past transactions.

Asset-Based Valuation

- A business valuation focuses on the value of the company’s assets, which is

the fair market value of its total assets after deducting liabilities.
- It is a commonly used valuation method, as it gives a thorough analysis of
what the company owns by using the company’s assets and liabilities.

When is the Asset-Based Valuation Approach Used?

● The Type of Company

The asset-based approach can be used on companies that hold both tangible
and intangible assets, either asset-holding companies or asset-operating
companies, which in almost all businesses fall into these categories.

● The Company’s Business Interests

The asset-based method is used to evaluate the value of the overall business.
This typically happens when in the purchase of the company, selling a
company, merger, or acquisition. The price of the company is directly related
to its tangible and intangible assets.

● Types of Transactions in a Business

The asset-based method can be used for taxable transactions to secure

financing since multiple creditors place different values on the assets of the
business.

● Availability of the Data

If there is no access to information or changes in value of tangible or

intangible assets since their valuation date can hinder the analyst’s ability to
use this method.
Challenges

● Assets like PPE (Property, Plant, and Equipment)

This may be difficult to evaluate because specific information about them may
not be readily available to the public and the value of these assets is
subjective.

● Intangible Assets

Some intangible assets like goodwill are recorded in the balance sheet and
some are not. Regardless, intangible assets are hard to quantify, so some
analysts may exclude them altogether.

Book Value Method

- The Book Value Method highly depends on the value of the assets declared on
the financial statements.
- Book Value is important in valuation because it represents a fair and accurate
picture of the company’s worth. The figure is determined using historical
company data; this means that Investors and Market analysts get a reasonable
idea of the company’s worth. When Book Value is compared to the company's
market value, book value can indicate whether a stock is underpriced or
overpriced.

Book Value = Total Assets - Total Liabilities

Replacement Value Method

● Replacement Value refers to the current amount required to replace an asset

with a similar one under present market conditions.

Considers:

- Market value of components.

- Preparation and operational costs

 ● Replacement Value Method estimates the value of an asset based on its
current replacement cost, reflecting the cost of replacing it with a similar
asset at current market conditions.

It adjusts the value of individual assets to account for their replacement costs.

Factors Influencing Replacement Value Method

● Age of the Asset

- older assets may incur higher maintenance costs
- availability of similar designs may also be affected by age
● Size of the Asset
- relevant for fixed assets, particularly real estate
- larger assets may be compared to similar-sized counterparts for
accurate valuation
● Competitive Advantage of the Asset
- assets with distinct characteristics may be harder to replace
- evaluators may combine values of similar assets that can perform the
same function

Comparison of Book Value Method and Replacement Value Method

Aspect Book Value Method Replacement Value

Method

Basis of Valuation Original cost of the asset Current market cost of

minus accumulated replacing the asset

depreciation

Use Case Ongoing business, Insurance, startups,

financial reporting liquidated businesses

Accuracy May be outdated due to Reflects real-time value of

depreciation assets

Focus Focuses on the asset's Focuses on the asset’s

 historical value recorded replacement cost in

in books today's market

Book Value Method Replacement Value

Method

Advantages ● Easy to calculate ● Reflects current

using historical market conditions.

financial records. ● Provides more

● Often used for accurate valuations

accounting and tax for insurance and

purposes. asset replacement.

Limitations ● Does not account ● May overestimate

for current market value due to market

conditions. fluctuations.

● Can understate or

overstate asset

value due to

depreciation.
Globe Telecom, Inc.

Globe Telecom, Inc., founded in 1935, is a leading telecommunications provider

in the Philippines. It delivers a wide range of services, including mobile
communication, broadband, and digital solutions. Operating under well-known brands
such as Globe Postpaid, Prepaid, and TM, the company caters to a diverse customer
base across the country.

The company leverages advanced technologies like 4G, LTE, and 5G to ensure
seamless connectivity nationwide. Globe Telecom is publicly listed on the Philippine
Stock Exchange (PSE) and is part of the PSE Composite Index, highlighting its strong
presence in the local market.

Globe Telecom was initially established through a partnership between Ayala

Corporation and foreign stakeholders. Its current leadership includes Ernest Cu, who
serves as the President and CEO and has driven digital innovation within the
company. Other key executives include Rosemarie Maniego-Eala, the Chief Financial
Officer, and Rebecca Eclipse, the Chief Customer Experience Officer.

The company has expanded its operations through several subsidiaries. For
instance, 917 Ventures focuses on developing digital solutions, while Kickstart
Ventures invests in venture capital opportunities. Globe also owns Yondu, an IT
consulting firm, and has strategic investments in financial technology (fintech) and
e-commerce industries.

Globe Telecom is recognized for its strong Environmental, Social, and

Governance (ESG) practices. It is a member of the FTSE4Good Index, demonstrating
its dedication to corporate sustainability and governance. The company has also
initiated projects such as the Hapag Movement, which addresses hunger and promotes
digital inclusion through innovative technology.

Globe Telecom, Inc. was chosen for Asset-based valuation due to the
availability of reliable and comprehensive data about the company. This information
enables the effective application of both the Book Value Method (BVM) and the
Replacement Value Method (RVM). With accurate financial data, the company's book
value can be calculated, reflecting its net worth according to its financial statements,
and the replacement value can be estimated, determining the cost to replace its assets
at current market prices.
The Integration of the Book Value Method into Globe Telecom, Inc.

The Book Value Method

This paper examines the application of the Book Value Method (BVM) as a
valuation technique for Globe Telecom, Inc. and its subsidiaries. By analyzing the
company’s financial statements, the BVM provides insights into its intrinsic value by
focusing on the net assets recorded on its balance sheet, also known as the
Consolidated Statement of Financial Position (see page 17 of the Consolidated
Financial Statements of Globe Telecom, Inc. and Subsidiaries dated December 31,
2023, 2022, and 2021). This method uses accounting data to calculate a company’s value
by subtracting its liabilities from its assets.

Valuation is an important part of financial analysis, helping stakeholders

understand a company’s worth based on various methodologies. The Book Value
Method (BVM) offers a simple way to estimate this value by looking at the company’s
net assets. This method has been selected for integration into Globe Telecom, Inc., a
leading telecommunications company in the Philippines, to gain a clearer
understanding of its financial position. By focusing on accounting figures, the BVM
calculates the residual value that shareholders would theoretically receive if the
company were liquidated.

The Book Value Method determines a company’s value using a straightforward

formula: Book Value = Total Assets - Total Liabilities

Alternatively, the BVM can be assessed through the shareholders’ equity

section of the balance sheet, which directly reflects the net worth of the company.
This calculation provides a tangible estimate of value based solely on historical cost
and accounting principles.

Rationale for Applying the Book Value Method to Globe Telecom, Inc.

Globe Telecom’s financial statements offer a comprehensive data set for

applying the Book Value Method (BVM). By analyzing its balance sheet, the value of
total assets is compared against its liabilities. The resulting figure represents the
company’s net book value, which signifies the equity available to shareholders.

The Book Value Method (BVM) is an appropriate approach to value Globe

Telecom, Inc. due to its simplicity, objectivity, and reliability. The BVM provides a
transparent overview of the company's financial position using audited financial
statements, acting as a baseline valuation and highlighting the importance of
shareholders' equity. This method is suitable for Globe Telecom due to its stable asset
base and conservative approach, preventing overvaluation. It also meets regulatory
standards and can be easily integrated into financial reports. Even if intangible assets
and future growth are not taken into account, the BVM provides a solid framework for
financial analysis.

The Book Value Method (BVM), however, only considers accounting data and
ignores factors like market conditions and future growth; it has some limitations. To
get a more complete picture of the company’s worth, it is useful to combine the BVM
with other valuation methods.

Application of Book Value Method

1. In the Book Value Method, the value of the enterprise is based on the book
value of the assets less all non-equity claims against it. Hence, the formula is
as follows:

Net Book Value of Assets = Total Assets - Total Liabilities

Number of Outstanding Shares

2. Compute for the Total Assets

Total assets is = 611,628,185 000

 3. Compute for the Total Liabilities

Total liabilities is = 451,701,447,000

4. Subtract the Total Liabilities to the Total Assets divided by the Number of
Outstanding Shares:

5. The Book Value per Share is:

Application of Replacement Valuation Method

1. Analyze the items that the valuation method can be applied to.
 Upon assessment of the notes, the following items can be valuated:

● Property & Equipment

● Intangible Assets and Goodwill- net

● Right of Use - Assets

● Investments in Joint Ventures

2. Analyze the account

Upon assessment of the accounts, the cost of the assets + adjustments can be
used as an estimate for replacement value of an item. Since it is the available
data in the notes, we assume that the cost and its adjustments is classified as
the Replacement value.

3. Compute for replacement value by applying the replacement adjustment, in

the case that the replacement value is present, identify the replacement
adjustment from the book value

Formula:

Replacement value/share = [(NBV x Replacement Adjustment)/Common Shares]

Formula:

Replacement Adjustment of an Asset = [(Replacement Value/ BV) x 100]

For Property and Equipment

To compute for replacement adjustment of this asset, apply the formula:

The replacement adjustment is:

662,813,772,000
( 334,408,653,000 ) x 100 = 198.2047%

For Intangible Asset

The replacement adjustment is

78,912,458,000
( 23,373,106,000 ) x 100 = 337.6207%

The replacement adjustment is:

78,912,458,000
( 23,373,106,000 ) x 100 = 337.6207%

For Right-of-Use Asset

The replacement adjustment is:
83,163,679,000
( 69,538,796,000 ) x 100 = 119.5932%

For Investments in Joint Ventures

The replacement adjustment is:

58,193,453,000
( 55,335,717,000 ) x 100 = 105.1644%

The replacement adjustments are obtained to understand the differences in assets

when replacement valuation is applied.

1. Now compute for replacement value per share by computing for total current
and non-current assets and subtracting for liabilities and divide by
outstanding shares (BVM application):
The replacement value/ shares will be computed as follows:

1,012,055,275,000 - 451,701,447,000 = 560,353,828,000

560,353,828,000 / 144,228,604 = 3885.18/share

Comparison of the Application of Valuation Used

The comparison table shows the differences between the Book Value Method
(BVM) and the Replacement Value Method (RVM) in valuing assets. Generally, the
RVM results in higher asset valuations because it considers the current cost of
replacing an asset, while the BVM relies on the asset’s historical cost, which can be
outdated. For example, Property and Equipment is valued at 662.81 billion under the
RVM, which is almost double the 334.41 billion in the BVM. This difference happens
because the RVM takes into account market changes, inflation, or new technology,
while the BVM doesn't reflect those shifts and is based on the asset's original cost,
minus depreciation.

Similarly, Intangible Assets and Goodwill are valued at 78.91 billion in the
RVM, which is 337.6% higher than the 23.37 billion in the BVM. Intangible assets
like brand value or patents can increase in value over time, especially in certain
industries, and the RVM reflects these changes better than the BVM, which relies on
older accounting methods. For Right of Use Assets, the RVM also shows a higher
value of 83.16 billion compared to 69.54 billion in the BVM, showing a 119.59%
increase. This increase is because the RVM looks at current market conditions, such
as higher leasing rates, while the BVM values these assets based on older records. In
some cases, like with Investments in Joint Ventures, the difference between the two
methods is smaller. The RVM shows a 105.16% increase, valuing it at 58.19 billion
compared to 55.34 billion in the BVM. This is because investments like these tend to
be more stable and less affected by market changes, so both methods give similar
results.

Therefore, the Replacement Value Method usually gives higher values because
it reflects current market conditions, while the Book Value Method is more
conservative and based on historical costs. The choice of method depends on the
nature of the asset and how up-to-date you want the valuation to be.

Conclusion

Both the Book Value Method (BVM) and the Replacement Value Method
(RVM) play crucial roles in asset valuation, and understanding their unique
applications is essential for accurate financial analysis. The BVM offers a reliable,
conservative estimate based on historical costs, which is valuable for accounting
purposes, financial reporting, and assessing a company's net worth over time. It
provides a stable and consistent measure that is useful for businesses with long-term
assets and less market volatility.

In contrast, the RVM offers a more dynamic approach, reflecting the current
cost of replacing an asset in today’s market. This method is particularly important
for industries where asset values are highly influenced by market conditions,
technological changes, or inflation. It is especially useful in insurance, real estate,
and asset management, where accurate replacement values are necessary for risk
assessment, insurance premiums, and investment decisions.

By using both methods, businesses and financial analysts can obtain a more
comprehensive view of asset value, combining the historical perspective of BVM
with the market-driven insights of RVM.This balanced approach ensures more
informed decision-making, helping organizations navigate different financial
situations, whether valuing assets for reporting, insurance, or strategic planning.