The value of asset-based analysis of a business is equal to the sum of its parts. That is the theory underlying the asset-based approach to business valuation. It is based on the principle of substitution: no rational investor will pay more for the business assets than the cost of procuring assets of similar economic utility.

In contrast to the income-based approaches, which require subjective judgments about capitalization or discount rates, the adjusted net book value method is relatively objective. Pursuant to accounting convention, most assets are reported on the books of the subject company at their acquisition value, net of depreciation where applicable. These values must be adjusted to fair market value wherever possible.

The approach is not commonly used to value a non-controlling equity ownership interest of a profitable going-concern operating business enterprise. This is principally due to the fact that profitable going-concern firms typically have a variety of intangible assets that should be discretely valued in order to properly estimate total asset value.

The approach is appropriate for the valuation of holding companies, very small companies with limited intangible value or early stage companies.