When companies want to establish the market value of their tangible assets, they seek out a plant and equipment (P&E) valuation. Generally, this is an analysis of the assets used to produce various products and services. They are the core of many businesses' operations and performance, making their upkeep and valuation of the utmost importance. Licensed P&E valuers in New South Wales are qualified to calculate the fair market value based on the specific industry, market conditions and more.
These kinds of valuations are particularly complex. Simply knowing the conditions and factors that affect or make a valuation higher requires highly specialised knowledge and experience.
There are a wide range of factors that can affect a valuation. They include:
- age and condition
- technological advancements
- changes in market demand
- government regulations and policies.
For instance, newer equipment in better condition may have a higher value than older equipment in need of frequent maintenance or repairs. If certain equipment is no longer in demand, perhaps due to technological changes and new advancements, this will affect the valuation as well.
Regulatory changes can impact the result significantly too. These may include tax laws, environmental regulations and safety standards established by government or other bodies.
How does the physical condition affect a P&E valuation?
In any form of P&E valuation service, the condition of plant and equipment assets plays a crucial role in determining their value. This is relevant for valuations for all purposes, including insurance, taxation, accounting and finance.
In general, assets in good condition that are well-maintained and have a long remaining useful life are valued more highly. Conversely, assets that are in poor condition or are nearing the end of their remaining useful life tend to be valued considerably lower.
Remaining useful life refers to the number of years an asset, machine or another piece of equipment can be expected to function as required before needing to be replaced.
Condition is determined based on factors including:
- age
- usage
- maintenance history
- defects.
This is also a useful way to identify any critical repairs or replacements that may increase an asset’s value. That said, your valuer will also consider the cost of repairs or replacement when determining the value of the assets. This applies to upgrades or improvements as well.
It’s clear that properly maintaining your plant, machinery and equipment assets is crucial to maximising their market value. An independent P&E valuation is a tried-and-true method to help you achieve this.
How can technological advancements affect a P&E valuation?
When conducting a P&E valuation, licensed valuers depend on a broad knowledge of various industries and technologies. In short, advances in technology can lead to new equipment and machinery with increased efficiency and productivity. This can positively affect a valuation. On the other hand, outdated equipment may become obsolete, decreasing its value.
Depreciation is one of the most important factors to consider when looking at technological advancements in plant and equipment. Machinery that is older or less efficient may depreciate faster than newer, more technologically advanced equipment.
This means that the value of outdated equipment may decrease more rapidly than newer models, leading to a lower valuation.
Companies employing the latest technologies are more likely to receive higher valuations. As an example, the improved efficiency and reduced labour costs that come with automation and robotics in manufacturing are likely to boost the results of a P&E valuation.
The availability of replacement parts and maintenance will impact the process as well.
If the manufacturing of certain equipment ends, it generally becomes more expensive to repair, reducing its market value. Conversely, machinery with replacement parts and affordable maintenance services may have a higher valuation.
This is yet another example of the kind of far-reaching knowledge valuers need to ensure accuracy and reliability in their reporting.
What effects can government regulations have?
Various government regulations and policies can notably impact a P&E valuation. They may affect the methods used, the official standards applicable and the final results of the process.
Taxation policy is an important factor here. This can affect the amount of depreciation that can be claimed on plant and equipment. This will affect how the depreciation is calculated. This, in turn, can have a significant impact on the value of the plant and equipment, as the depreciation expense is deducted from the asset's value to calculate its net book value.
Valuers need to remain abreast of any changes to official regulations and policies that can impact valuations performed for accounting purposes.
A common example would be the standards set out by the Australian Accounting Standards Board (AASB). They provide guidelines for the frequency of revaluations and the methods used to calculate the value of assets, among others.
Noncompliance can result in penalties and fines, as well as a negative impact on the overall financial health of the business.
Summary
Numerous internal and external factors can significantly impact the process, methods and results of a plant and equipment valuation. Chief among these is generally the physical condition of the assets, relevant technological advancements, depreciation, market demand and a range of government and official policies.
Valuers look at the likes of your asset’s remaining useful life, maintenance history, necessary repairs, modernity and more.
This calls on knowledge of vast amounts of different machinery and equipment, as well as up-to-date knowledge of the larger market and economy. More specifically, the interplay between the market and the current state of your assets.
To learn about P&E valuations, reach out to one of our licensed valuers today.