{"id":1994,"date":"2019-09-27T13:33:00","date_gmt":"2019-09-27T13:33:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=1994"},"modified":"2026-03-23T09:29:31","modified_gmt":"2026-03-23T09:29:31","slug":"asset-based-valuation-models","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/asset-based-valuation-models\/","title":{"rendered":"Asset-based Valuation Models"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Equity Valuation: Concepts and Basic Tools (2024\/2025 Level I CFA\u00ae Exam \u2013 Equity \u2013 Module 8)\",\n  \"description\": \"This video covers Equity Valuation: Concepts and Basic Tools, explaining valuation models, dividend types, and pricing multiples. Learn to assess overvalued vs. undervalued stocks, apply dividend discount models, and calculate intrinsic value using methods like P\/E ratios and asset-based valuation. Includes key formulas and practical examples.\",\n  \"uploadDate\": \"2023-07-27T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/GWw4je023oo\/maxresdefault.jpg\",\n  \"contentUrl\": \"https:\/\/youtu.be\/GWw4je023oo\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/GWw4je023oo\",\n  \"duration\": \"PT53M43S\"\n}\n<\/script>\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"Which of the following famous investing approaches made the most use of asset-based valuation?\",\n    \"text\": \"Which of the following famous investing approaches made the most use of asset-based valuation? A. Ben Graham\u2019s \u201cNet-Net\u201d or \u201cCigar Butt\u201d approach of finding companies selling for less than their net working capital. B. Joel Greenblatt\u2019s \u201cMagic Formula\u201d approach, which screens for stocks with low P\/E ratios that also achieve high returns on invested capital. C. Charlie Munger\u2019s\/Warren Buffett\u2019s investment approach targeting great companies at good prices, focusing heavily on companies with sustainable moats and strong management.\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"Ben Graham\u2019s \u201cNet-Net\u201d (or \u201cCigar Butt\u201d) approach makes the most use of asset-based valuation because it focuses primarily on a firm\u2019s balance sheet\u2014especially current assets and liabilities\u2014to find companies trading below their net working capital value. This is a direct application of asset-based valuation logic. In contrast, Greenblatt\u2019s \u201cMagic Formula\u201d relies on valuation multiples like P\/E and profitability metrics, while Buffett\/Munger\u2019s approach emphasizes business quality, competitive advantages, and cash-flow earning power rather than purely asset values.\",\n      \"dateCreated\": \"2026-01-12\",\n      \"upvoteCount\": 0,\n      \"url\": \"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/asset-based-valuation-models\/\"\n    }\n  }\n}\n<\/script>\n\n\n<p><iframe loading=\"lazy\" src=\"\/\/www.youtube.com\/embed\/GWw4je023oo\" width=\"611\" height=\"343\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>An asset-based valuation of a company uses estimates of the market or fair value of the company\u2019s assets and liabilities and, thus, is most appropriate for companies with a high proportion of current assets and current liabilities and few\/insignificant intangible assets. Asset-based valuations are frequently used in combination with multiplier models to value private companies or to supplement the valuation of public companies.<\/p>\n<p>Not all companies own assets for which the fair value can be easily determined, and market values can differ significantly from carrying values. Furthermore, asset valuations may be of limited use in a hyper-inflationary environment.<\/p>\n<blockquote>\n<h3><strong>Question<\/strong><\/h3>\n<p>Which of the following famous investing approaches made the most use of asset-based valuation?<\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li>Ben Graham\u2019s \u201cNet-Net\u201d or \u201cCigar Butt\u201d approach of finding companies selling for less than their net working capital.<\/li>\n<li>Joel Greenblatt\u2019s \u201cMagic Formula\u201d approach, which screens for stocks with low P\/E ratios that also achieve high returns on invested capital.<\/li>\n<li>Charlie Munger\u2019s\/Warren Buffett\u2019s investment approach targeting great companies at good prices. This approach focuses heavily on companies with sustainable moats (competitive advantages) generally achieved with a valuable brand (intangible) and competent management.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is <strong>A<\/strong>.<\/p>\n<p>Since Ben Graham\u2019s approach focuses solely on current assets and liabilities, asset-based valuation is a core part of the strategy.<\/p>\n<p><strong>B is incorrect.<\/strong> Joel Greenblatt\u2019s \u201cMagic Formula\u201d is based on a multiplier valuation because of its use of the P\/E ratio.<\/p>\n<p><strong>C is incorrect.<\/strong> While Warren Buffett made a number of \u201cCigar Butt\u201d investments in his day, the investment approach that he is best known for (thanks in large part to Charlie Munger) strays from asset-based valuation towards valuations that take valuable intangibles into account.<\/p>\n<\/blockquote>\n<div style=\"text-align: center; margin: 40px 0;\"><a style=\"display: inline-flex; align-items: center; justify-content: center; padding: 12px 20px; border-radius: 999px; background-color: #1a73e8; color: #ffffff; text-decoration: none; font-weight: 600;\" href=\"https:\/\/analystprep.com\/free-trial\/\" target=\"_blank\" rel=\"noopener\"> Start Free Trial \u2192 <\/a>\n<p style=\"font-size: 15px; margin-top: 12px; color: #555;\">Learn how to value a company by estimating the fair value of its assets and liabilities, when this approach is appropriate, and how it compares to income and market-based models in CFA Level I.<\/p>\n<\/div>\n\n","protected":false},"excerpt":{"rendered":"<p>An asset-based valuation of a company uses estimates of the market or fair value of the company\u2019s assets and liabilities and, thus, is most appropriate for companies with a high proportion of current assets and current liabilities and few\/insignificant intangible&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[8],"tags":[],"class_list":["post-1994","post","type-post","status-publish","format-standard","hentry","category-equity","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Asset-Based Valuation Models | CFA Level 1 - AnalystPrep<\/title>\n<meta name=\"description\" content=\"Discover how asset-based valuation models estimate a company&#039;s worth by assessing the fair market value of its assets and liabilities.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/asset-based-valuation-models\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Asset-Based Valuation Models | CFA Level 1 - AnalystPrep\" \/>\n<meta property=\"og:description\" content=\"Discover how asset-based valuation models estimate a company&#039;s worth by assessing the fair market value of its assets and liabilities.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/asset-based-valuation-models\/\" \/>\n<meta property=\"og:site_name\" content=\"AnalystPrep | CFA\u00ae Exam Study Notes\" \/>\n<meta property=\"article:published_time\" content=\"2019-09-27T13:33:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-03-23T09:29:31+00:00\" \/>\n<meta name=\"author\" content=\"Simon\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Simon\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"1 minute\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/asset-based-valuation-models\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/asset-based-valuation-models\/\"},\"author\":{\"name\":\"Simon\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687\"},\"headline\":\"Asset-based Valuation Models\",\"datePublished\":\"2019-09-27T13:33:00+00:00\",\"dateModified\":\"2026-03-23T09:29:31+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/asset-based-valuation-models\/\"},\"wordCount\":326,\"articleSection\":[\"Equity\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/asset-based-valuation-models\/\",\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/asset-based-valuation-models\/\",\"name\":\"Asset-Based Valuation Models | CFA Level 1 - AnalystPrep\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#website\"},\"datePublished\":\"2019-09-27T13:33:00+00:00\",\"dateModified\":\"2026-03-23T09:29:31+00:00\",\"author\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687\"},\"description\":\"Discover how asset-based valuation models estimate a company's worth by assessing the fair market value of its assets and liabilities.\",\"breadcrumb\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/asset-based-valuation-models\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/asset-based-valuation-models\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/asset-based-valuation-models\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Asset-based Valuation Models\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#website\",\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/\",\"name\":\"AnalystPrep | CFA\u00ae Exam Study Notes\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687\",\"name\":\"Simon\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2016\/09\/analystprep-150x150.png\",\"contentUrl\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2016\/09\/analystprep-150x150.png\",\"caption\":\"Simon\"},\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/author\/analystprep\/\"}]}<\/script>\n<meta property=\"og:video\" content=\"https:\/\/www.youtube.com\/embed\/GWw4je023oo\" \/>\n<meta property=\"og:video:type\" content=\"text\/html\" \/>\n<meta property=\"og:video:duration\" content=\"3224\" \/>\n<meta property=\"og:video:width\" content=\"480\" \/>\n<meta property=\"og:video:height\" content=\"270\" \/>\n<meta property=\"ya:ovs:adult\" content=\"false\" \/>\n<meta property=\"ya:ovs:upload_date\" content=\"2019-09-27T13:33:00+00:00\" \/>\n<meta property=\"ya:ovs:allow_embed\" content=\"true\" \/>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Asset-Based Valuation Models | CFA Level 1 - AnalystPrep","description":"Discover how asset-based valuation models estimate a company's worth by assessing the fair market value of its assets and liabilities.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/asset-based-valuation-models\/","og_locale":"en_US","og_type":"article","og_title":"Asset-Based Valuation Models | CFA Level 1 - AnalystPrep","og_description":"Discover how asset-based valuation models estimate a company's worth by assessing the fair market value of its assets and liabilities.","og_url":"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/asset-based-valuation-models\/","og_site_name":"AnalystPrep | CFA\u00ae Exam Study Notes","article_published_time":"2019-09-27T13:33:00+00:00","article_modified_time":"2026-03-23T09:29:31+00:00","author":"Simon","twitter_card":"summary_large_image","twitter_misc":{"Written by":"Simon","Est. reading time":"1 minute"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/asset-based-valuation-models\/#article","isPartOf":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/asset-based-valuation-models\/"},"author":{"name":"Simon","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687"},"headline":"Asset-based Valuation Models","datePublished":"2019-09-27T13:33:00+00:00","dateModified":"2026-03-23T09:29:31+00:00","mainEntityOfPage":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/asset-based-valuation-models\/"},"wordCount":326,"articleSection":["Equity"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/asset-based-valuation-models\/","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/asset-based-valuation-models\/","name":"Asset-Based Valuation Models | CFA Level 1 - AnalystPrep","isPartOf":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#website"},"datePublished":"2019-09-27T13:33:00+00:00","dateModified":"2026-03-23T09:29:31+00:00","author":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687"},"description":"Discover how asset-based valuation models estimate a company's worth by assessing the fair market value of its assets and liabilities.","breadcrumb":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/asset-based-valuation-models\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/asset-based-valuation-models\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/asset-based-valuation-models\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/analystprep.com\/cfa-level-1-exam\/"},{"@type":"ListItem","position":2,"name":"Asset-based Valuation Models"}]},{"@type":"WebSite","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#website","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/","name":"AnalystPrep | CFA\u00ae Exam Study Notes","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/analystprep.com\/cfa-level-1-exam\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687","name":"Simon","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/image\/","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2016\/09\/analystprep-150x150.png","contentUrl":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2016\/09\/analystprep-150x150.png","caption":"Simon"},"url":"https:\/\/analystprep.com\/cfa-level-1-exam\/author\/analystprep\/"}]},"og_video":"https:\/\/www.youtube.com\/embed\/GWw4je023oo","og_video_type":"text\/html","og_video_duration":"3224","og_video_width":"480","og_video_height":"270","ya_ovs_adult":"false","ya_ovs_upload_date":"2019-09-27T13:33:00+00:00","ya_ovs_allow_embed":"true"},"_links":{"self":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/1994","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/comments?post=1994"}],"version-history":[{"count":13,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/1994\/revisions"}],"predecessor-version":[{"id":59868,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/1994\/revisions\/59868"}],"wp:attachment":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/media?parent=1994"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/categories?post=1994"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/tags?post=1994"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}