The assets of a company are made up of many tangible and intangible properties. In many cases, buyers of a business outside a bankruptcy do not concern themselves with the value of assets other than for reasons that are secondary to the acquisition. The buyer of the company is first and foremost measuring the return on the investment. The question is, "What will this company do for me?" However, in a bankruptcy matter, the assets usually become an important factor. After a company has failed, the new purchaser of a business will consider the risk of a restart or turnaround, and part of the measurement of the risk to the buyer's investment is the asset value. This value may, in a failure, be relied upon for a return of all or a portion of the money paid to acquire the bankrupt estate.

There are many reasons why a buyer may be interested in a business, even one in bankruptcy. Many acquisitions have been completed in order to remove the acquired company as a competitor. This can happen in a bankrupt estate. At other times, an intangible such as a patent, trademark or client base may be important. It is for this reason that the court should have some form of market analysis address these issues if they are present.

There are many types of items that make up the assets of a company. In addition to the intangibles, there can be real estate and improvements, product lines, machinery and equipment, and inventory. Today, there are very sophisticated ways of measuring inventory to get a reasonable handle on its value under various concepts.

Choosing an appraiser is not always easy. Simply choosing a name from a bank or accepting the recommendation of someone can be dangerous. Even if the appraiser is good as a valuer, there are other important considerations, such as the availability of litigation support from the appraisal firm, the understanding of value concepts, having an adequate staff, and the ability of the chosen firm to perform a good audit with good descriptions of the assets.

When engaging an appraisal firm, there are questions that should be asked of the firm. It is important to know the background of the appraiser(s) assigned to a project to be certain that their expertise applies to the industry in question and to the level of the project to be completed.

There are many levels within the general designation of "appraiser," such as trainee appraiser and senior appraiser. These terms can vary by company, so a user of a firm's services should have the firm define these terms as they apply to them. It is also possible for an appraiser to be limited in his/her ability in a particular area. For this reason, it is necessary to know when evaluating an appraiser's qualifications if he/she is disciplined in a specialized area. An individual who has been practicing the profession of appraising for 20 years and specializing in an industry, i.e., medical equipment, will require assistance to properly perform an appraisal of equipment in an industry such as metalworking, chemical, food processing, etc.

To remain current within the appraisal profession, an appraiser should continue his education. This can be accomplished by attending and participating in seminars that allow appraisers to hone their skills and understanding of valuation issues. In addition, associations are extremely important for continuing education. Becoming a member of appraisal societies gives an appraiser the ability to achieve a senior accreditation, which lends credibility to the firm or individual who conducts the appraisal.

It is also possible to have appraisers at different levels of capability within an appraisal firm, and there may be an even greater disparity between appraisers within the same valuation society. Naturally, the societies do their best to have appraisers maintain consistency, value accuracy and fiduciary responsibility through the practice of the methods and standards of valuation for which the society stands. Adherence to the Uniform Standards of Professional Appraisal Practice (USPAP) does add consistency.

It is, of course, understood that the court should be confident that the appraisal firm retained is one of high integrity and credibility; further, it should be expected that any errors or omissions made in the report, discovered at any time, will be corrected as long as there is proper justification supporting those changes.

When considering an appraisal firm, there are several areas that should be evaluated. One such area is the firm's background and its acceptance in the marketplace. When looking at areas such as financial restructuring, with special emphasis on a bankrupt company, the acceptance of an appraisal firm by lenders is very important. In many cases, debtor-in-possession (DIP) financing is being considered in which an asset-based lender would be involved. The appraisal may assist as collateral valuation support for DIP financing and may also be used as a guide to the court for fairness in all areas in which monetary decisions must be made.

In a multi-disciplined appraisal, there are occasions when different firms become involved for different disciplines. For example, if real estate and machinery and equipment are combined in one report, having separate departments in the appraisal firm handling these valuations would enable work within the various areas (real estate and machinery and equipment) to be completed simultaneously so that the deadlines for production of the formal report would be met. On the other hand, these different disciplines could be accomplished separately by two different firms. In this case, there should be cooperation between the firms so the valuations of items such as bridge cranes are not considered in both reports. It may not be necessary to contract different companies to perform appraisals within the different disciplines of valuation concepts, as some firms are able to perform valuations on every category of assets and accomplish them at the same time. Engaging a single multi-task firm can be less expensive and should avoid the overlaps between disciplines. It will also provide a consistency in the understanding of valuation concepts.

There are three major categories that make up business assets other than intangibles, cash and receivables:

• Machinery and Equipment, sometimes referred to as "personalty" or "fixed assets," are typically described as items used for product manufacture rather than items considered as a part of real estate or available for day-to-day sale. This would include such items as machine tools, office furniture and business machines, vehicles, plant furniture and material-handling equipment.
• Real Property is property that could be commercial, industrial, unimproved, rural or residential. It is necessary to determine whether certain items should be considered as part of the real estate and improvements or as equipment. For example, bridge cranes or wall-mounted water fountains might be considered equipment for purchase allocation, insurance or, in a few cases, remarketing under a removal concept.
• Inventory, which in the past was valued by many on general assumptions of a residual percentage applied to cost, is now broken down in detailed fashion in order to derive measurements that can be applied specifically to produce accurate results.

Sometimes business value can be important to an estate. Business valuations are typically requested when there is a need to measure the viability of the business, and such valuations can also be used as a marketing tool. Additional value may be considered for the business over and above the physical assets if the company could be considered profitable upon restructuring.

There are a few occasions in which software, as an asset of a company, can have value. However, software appraisals can be difficult to analyze due to the various methods of measurement. The worth of software is the return on an investment as projected by its sale and/or use. Two specific methods of measurement are the income method and the cost of replacement (adjusted) method; income is typically used to establish fair market value and reproduction cost for fair market value-in-use. Remarketing of software is very difficult to predict; thus, valuations are used more to determine market potential, use viability and allocation in a purchase situation. In bankruptcy, liquidation value is a well-accepted concept. However, for appraisals of software and of various areas of intangibles, there may be a greater margin of error in any valuation of that type of asset than in a valuation of machinery and equipment, real estate or inventory.

The use of an appraiser can be more than simply arriving at value. There are times when an appraiser can be a consultant for such things as locating and describing assets, analyzing marketing techniques, assisting in negotiations for fees, or for discussion of measurements of "value added" areas. Appraisers who have also been associated in liquidation or brokerage have some insight, in addition to the value, into the way to arrive at prices that reflect the valuation. Such things as valuation interpretation can be important, and an appraiser has usually experienced the various definitions and uses. Remember, there are various interpretations of value, and the slant of that interpretation is typically influenced by those who have the most to gain. It is beneficial to have an independent party who can serve the needs without advocacy.