What is plant Valuation?
Plant valuation is a comprehensive estimation of the fair market value of a company’s assets and machinery intended to manufacture and distribute its products. Since plant valuation is a multi-faceted equation requiring a solid understanding of all variables, it should always be done by certified plant and machinery valuers.
Businesses are set up to make money; thus, evaluating how spending will affect value generation is their top priority. The plant valuation determines the fixed assets worth of the company. This valuation is crucial for asset management, laying off depreciating assets, finalising insurance packages, calculating taxes, and determining their future worth. That’s why every medium to large-scale manufacturer needs to decide on his current business valuation.
What are the bases of plant valuation?
Three bases, including the following, can be used to perform a plant and machinery valuation:
- Market Value:
It is the price at which a plant and its machinery can be sold in the open market. The market value assessment is ideal when an entity is willing to sell its assets to all potential buyers.
- Equitable Value:
It is the estimated price for transferring an asset or liability between two parties per their respective interests. It is suited for private treaty contracts where two specific parties settle for an equitable price to be paid. It pays particular attention to the useful life of plant and machinery assets used in manufacturing and other operations.
- Fair Value:
The fair value of an asset is the price at which an asset or liability can be transferred. The purpose of fair value is to file financial statements and the balance sheet of the assets. The calculation of fair price largely depends upon the valuation standards of your plant valuation service.
Reasons Why Plant Valuation Is Important?
So far, we have explained the meaning and basic methods for plant valuation. In this section, we will show its importance for a business. A plant valuation helps you in the following:
- Mergers & Acquisitions
The business world is all about buying or selling assets. You often have to swallow the bitter pill and opt for either a merger or a complete sell-out. In both cases, finding the market value helps get the right price. Similarly, when you know the value of the assets, you can decide about the acquisition price.
- Asset Management and Planning
For any long-term business success, it is vital to have a comprehensive asset management plant. A plant gives you the value of all fixed assets involved in manufacturing and distributing goods. You learn about the financial and logistical risks and possible threats. Based on this data, you can keep, renovate, degrade, and dispose of assets.
- Estimation of an Asset’s life span
The value of assets depends upon their remaining useful life. A valuation can help determine the life span of land, machinery, utilities, and distribution lines installed in a factory. With this data, you can plan effective replacement strategies.
A valuation also highlights the ill practices used in manufacturing and distributing goods. As a manager, you should take the necessary measures to increase an asset’s life span.
- Regulatory Compliance
To be credible, a business needs to determine its market value. In the developed world, it is mandatory to publish annual financial statements. Finding the value of a company’s assets helps conform to local and international regulatory compliances.
Tax Management
A tax is an amount a state deducts from a business for allowing operations in its territory. The tax directly depends upon the plant’s valuation. Once you know the actual value of all the land and installed machinery, you can calculate the income, corporate, sales, and other taxes. You can plan your approach to filing tax returns after knowing the tax amount. It also aids in figuring out your company’s net profit.
- Insurance Coverage & Claims Preparation
The insurance provides a safety net against potential mishaps. Plant and machinery insurance cover static or dynamic machines against breakdown or human errors. Insurance is particularly needed when:
- There is reliance on foreign material
- The installed machines are outdated
- A company is being restricted or undergoing downsizing
- The valuations used now are obsolete.
With plant valuation, you can choose the right insurance plan for manufacturing and distributing goods and services. Once you pay insurance, you no longer have to worry about outside factors.
Conclusion
A plant valuation provides the current value of a business’s fixed assets. It helps the owners to manage assets, pay taxes, find insurance plans, and decide about the future of their companies. However, it is a specialised field; you should only trust professionals with your business valuation.
If you are a UAE resident, contact Land Sterling for any plant valuation. Our experienced team has a valuation experience of properties worth more than 200 Billion AED. We can do plant valuation of any site across the region.
