What are Fair Asset Value & Net Asset Value?

01/04/2021 | Tobias Bitterli & Oliver Stock, greenmatch AG

When it comes to buying or selling projects in the renewable energy sector, various ratios are often used to evaluate investments and negotiate the purchase price. In this article we explain two of the most used ratios.

Fair Asset Value

The fair asset value is the value of the fixed assets if you sell them at market conditions. Contrary to what one might initially assume, the value of a project that you want to sell does often not correspond to the balance sheet value. The fair asset value could be much higher or even lower than the value listed in the balance sheet. For example, if all assets have already been depreciated, the book value of the asset could be €0, but the fair asset value could still be positive if the project is still generating a positive cash flow.

To calculate the fair asset value, the future free cash flow is discounted with the project target yield.

Net Asset Value

In contrast to the fair asset value, the net asset value corresponds to the current value of the equity. It is calculated with the help of the future cash flow to equity by discounting the future cash flows, that are due to the equity provider, with the target return on equity to today.

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