There are three primary methods of valuation methodology; the income approach, the comparable method and the depreciation method.
The Income Approach
The income approach is one of the three methods of machinery and equipment valuation. While it is usually the driving approach for business valuations since an entire enterprise is being valued based on it income generating past and future, the income approach is not an approach that is typically selected by equipment appraisers as the method to base value. The reason that it is not widely used in machinery appraisal is because it is difficult to calculate the future benefit that a specific machine or piece of equipment will bring to an owner since there are many factors as well as supporting assets, both tangible and intangible, possibly affecting the future income. USPAP requires that the income approach be considered in every equipment valuation, however it is often found that this approach is not as reliable as the sales comparison approach or the cost approach.
The Comparable Method
The Comparable Method is the most reliable and common method of equipment valuation. Aestimo’s extensive b equipment owner is keenly aware of these considerations as well as any remarketing agent.
The Depreciation Method
The depreciation method is also commonly used on oilfield equipment, most appraisal firms us a straight line charged equally over the entire useful life of an asset, this is common mistake. Due to upfront high capital expenditures many equipment groups realize a multi-life cycle, i.e. rather than replace the whole asset there are patterned and anticipated, sometimes mandated refurbishment intervals. It is crucial to precisely identify; true chronological age and refurbishment age then the two must be blended with actual physical condition to establish accurate current value. Aestimo has provided official Appraisal Review services of opposing competitor’s reports for insurance purposes and found this consideration to always be missing, much to the dismay and right of the vested parties.
The specific definition of value reported must be relative to the weighting and interpretation of the methods, true pragmatic understanding of all factors is essential.
Aestimo has visited Alberta’s primary oilfield manufacturing facilities for the sole purpose of gaining insight, not only in their manufacturing process but also patterned refurbishment cycles, costs, quality assurance etc. This upfront investment in due diligence has proved to be an invaluable asset during preliminary discussions with potential lenders, when determining the likely hood of an appraisal aiding in a prospect deal, one of many advantages had when partnering with Aestimo.
Aestimo has taken traditional straight-line deprecation and expanded to make allowance for multi-life cycles in all appraised categories where applicable.
Throughout the years Aestimo has completed varied assignments for clients from tax agencies and investment firms to insurance companies, the different valuation techniques and reporting format requirements has helped Aestimo to incorporate a repertoire of reporting styles, illustrations and formulas to ensure appropriate comprehension of numerical conclusions and process. Exemplar formulas would include; Actual Cash Value, Normal Useful Life, Remaining Useful Life etc. Exemplar illustrations would include; bar graphs, pie charts, third party reporting summaries and references.
Aestimo’s valuation methodology goes outside the primary three valuation methods, as does the considerations and realities of actual equipment owners and remarketing agents. Aestimo feels it is essential to understand and weight all contributing factors from fundamentals such as year, make & Model to local and international politics, be assured the more intelligence weighted the more accurate the valuation. Aestimo’s extensive international appraisal experience and local grass roots has positioned Aestimo to provide full spectrum and connectivity when determining valuation conclusions.