Manufacturing Equipment Valuations and Appraisals

In need of an equipment valuation of your manufacturing company?
Our valuation specialists have decades of experience working with manufacturing companies and business owners assisting them with complex analyses related to equipment valuation.

When determining the value of a piece of equipment, three primary appraisal methods are considered: the Cost Approach, the Sales Comparison Approach, and the Income Approach.

The Cost Approach is based on the Principle of Substitution, which suggests that a rational buyer would not pay more for an asset than the cost of acquiring a comparable alternative with the same functionality. Under this approach, the appraiser begins with the Replacement Cost New (or in some cases, the Reproduction Cost New) of the equipment and applies deductions for loss in value due to physical deterioration, functional obsolescence, and economic obsolescence. To estimate depreciation, the appraiser exercises professional judgment in determining the appropriate depreciation factor, often incorporating multiple forms of depreciation.

The Sales Comparison Approach determines value by evaluating recent sales or listing prices of similar assets. If the comparable sales differ in characteristics from the subject equipment, adjustments are made to align their values more closely with the item being appraised. The effectiveness of this approach depends on several factors, including the degree of similarity between the comparable sales and the subject asset, the timing of transactions, the accuracy of sale data, and the absence of unusual market conditions affecting the sale price. This method reflects real-world market transactions, capturing depreciation and obsolescence inherent in the asset, provided that adjustments for differences between comparables and the subject equipment are properly applied. Like the Cost Approach, the Sales Comparison Approach operates on the premise that an informed buyer would not pay more for an asset than the cost of acquiring a comparable alternative with similar functionality.

The Income Approach evaluates an asset’s value based on its ability to generate future economic benefits. This method involves analyzing the present value of expected income streams associated with the ownership and operation of the equipment. However, this approach is only applicable when reliable data on the asset’s income and expenses is available. If such financial data cannot be established with reasonable certainty, the Income Approach may not be a viable valuation method.

While valuation best practices require consideration of all three approaches, the specific asset and valuation purpose may determine whether each approach is applicable. In certain cases, the nature of the equipment, market conditions, or available data may limit the practicality of one or more methods.

Why us? Not all valuation firms are the same. Experience and credentials matter. We encourage you to review these 7 questions before selecting your business valuation provider and then review our experience to see if we are the right fit for you and your situation.