Skip to content

Machinery &
Equipment Valuations

Machinery and Equipment have intrinsic value since they can be created, bought, and used for the purposes of income and profits. Often the value is considered when the machinery and equipment comes as an integrated part of a property. As such, a valuation of machinery and equipment (M&E) is useful for determining purchase price allocations.

Valuing M&E is much different than valuing a business or commercial real estate. The values of M&E depend upon things like liquidation value, going concern value, installation costs, and various others. Generally speaking, the quicker one needs the money, the lower value they are able to collect from the liquidation of their M&E.

Since real estate and business values do not generally include installation costs, it is important that the appraiser is very clear about which value is being used. Many appraisers use what is called “the fair market retail value” where the owner is assumed to have purchased the equipment at liquidation prices.

Just like real estate appraisal, the machinery and equipment appraisals consists of three different approaches:

Industrial equipment appraisals

THE COST APPROACH

This approach is based upon the assumption that a purchaser would pay no more for an asset than the cost of creating a substitute with identical utility. This value is considered to be the upper limit. Once a value is obtained, adjustments need to be made by accounting for accumulated depreciation.

The Sales Approach

This approach is based upon the assumption that the value of the business’ assets can be obtained based upon the transactions of similar items selling in the secondary market. Comparable prices of comparable equipment is collected and then adjusted for differences like age, condition, capacity, location, etc.

THE INCOME APPROACH

This approach evaluates the earning capacity of the business assets being valued. This approach however, is rarely used when appraising individual machines and equipment, but rather when analyzing and appraising a production line or an entire production plant.

Physical Incurable Depreciation

Physical depreciation is caused from age, wear and tear, exposure and lack of maintenance. Incurable physical depreciation is depreciation that is non-fixable.

Physical Curable Depreciation

This type of depreciation is fixable.

The age-life method is the most typical way of calculating the level of incurable depreciation. To do this, the appraiser needs information regarding the economic life, effective age, estimated remaining life, normal useful life, and the chronological age of the M&E. By calculating the amount of depreciation that has occurred, the appraiser can conclude upon a fair value for the M&E.

Frazier Capital Valuation has experience valuing M&E from a variety of different industries. Contact us to find out more about conducting an M&E valuation with us.

Our comprehensive services encompass industrial equipment appraisals, heavy equipment appraisals, and machinery and equipment valuation, ensuring accurate assessments tailored to your business needs.

Connect With Us And Get Your FREE
Guide on Business Valuations.

This guide dispels myths in business valuation, offering clarity and accurate insights for business owners and the value of their businesses. Fill out the form below and we will email a PDF of this book to you. 

Please Send My FREE Book

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.