The Advantages of APV

Thinkstock/Comstock/Getty Images

APV, or adjusted present value, is a way to measure the worth of a leveraged firm. If you sum the net present value of an organization with the present value of the financing that has had to take place, you get a better sense of that company's actual value. This can be valuable for financial managers looking to make investment decisions based on metrics that are as accurate as possible.

Flexibility

APV is ideal for organizations whose ratio of debt to equity is in constant flux. Companies that go through many different projects that are capital-intensive would count, as would opportunities to carry out a leveraged buyout.

Transparency

While net present value (NPV) only looks at the more visible items contained in assets and liabilities, APV also looks at other real-world costs that will most certainly affect operations. This include the implications of filing for bankruptcy, issuing bonds and writing off certain expenditures as tax deductions.

Compatible with Debt Repayments

Not all debt repayments appear in the figures that go into the calculation of net present value (NPV). On the other hand, any loan repayment schedules must be a part of calculated APV. If one company is pondering the acquisition of another, knowing those schedules would be crucial.

Increasing in Popularity

At the time of publication, only about 11 percent of firms in the United States use APV when considering the acquisition of other companies. It is a methodology that was born on a college campus and has been slow to spread in popularity. Its enhanced accuracy in providing a look at a company's actual worth, though, is gaining ground among CFO's across the country.

References

About the Author

This article was written by a professional writer, copy edited and fact checked through a multi-point auditing system, in efforts to ensure our readers only receive the best information. To submit your questions or ideas, or to simply learn more, see our about us page: link below.

Photo Credits

  • Thinkstock/Comstock/Getty Images