The substance value procedure is a method for valuing companies. Thus, the calculation of all individual assets and liabilities with the respective common value is in the foreground. On the other hand, intangible assets for which there are no balance sheet values or other directly comprehensible approaches are not taken into account in the substance value procedure. The Valuation Act, which, among other things, regulates the valuation of companies, provides for the substance value procedure as a supplementary valuation method. Indeed, the value of the company determined by the asset value method is always decisive when other valuation methods determine lower values of the company. Thus, the intrinsic value of a company is considered a minimum for tax purposes. Only the actual value of a company ascertainable through a sale can justify a lower approach to the value of the company.

In the scientific investigation for the determination of values, the substance value was an important parameter from the outset. Although this applies to a large number of valuation objects, we should primarily be interested in the substance value of a company. In order to determine this, the substance value method was propagated at an early stage. However, the substance value method has some disadvantages compared to other alternatives, because it only covers things of substance. Nevertheless, the substance value method continues to be of great importance as a valuation method because it at least captures the material values of a company. Thus, the substance value method uses the substance value to determine a base quantity for the enterprise value. The advantage here is that the substance value method is easily applicable.

Nevertheless, tax law also refers to the substance value procedure. In particular, the substance value method plays an important role in the valuation of companies. This is because the substance value procedure provides the minimum value that a company should have for tax purposes (§ 11 (2) sentence 3 BewG). However, the simplified income value method in particular generally prevails in corporate valuation. The substance value procedure is used, for example, in the valuation of companies in the context of inheritance tax and gift tax as well as in the exit taxation. But also in the liquidation of companies, the substance value procedure for tax purposes plays an important role.

The substance value method is the simplest method for valuing companies. This involves determining the value of the company on a specific date. In principle, it is a matter of recognizing all assets belonging to the business assets of a company with their common value as a sum. In addition, other assets of the company are also considered. In a second step, all liabilities and debts of the company are deducted from this. In this way, one obtains as a result the substance value of the company.

Furthermore, the substance value method can be used specifically to determine a value for a company for sale. In this case, the asset value procedure assumes that a notional acquirer of the entity under valuation will continue it in the future. Consequently, it is relevant which assets are important for the actual planned continuation of the company. Because only this then captures the substance value process. Therefore, in the case of such an application of the substance value procedure, an investigation must also be carried out into the future use of the assets.

Since the asset value method basically simulates the replacement of the individual assets in the business, any other assets that an entity may have remain unrecognised. In particular, goodwill or other intangible assets are therefore excluded from the intangible value. For this reason, the substance value procedure is only established in tax law as a comparative method for determining the minimum value of a company. Because if you can determine the actual common value, but at least the future income value calculatively or in another way, then this company value is much more realistic than the substance value.

Nevertheless, the substance value procedure may also have its own justification. Indeed, in companies whose value is largely based on fixed assets (e.g. land, plant, machinery, goods and raw materials, consumables and consumables), the result obtained by calculation in the value method is quite exactly the common value of the company. This applies, for example, to real estate companies or to companies which primarily trade in goods of high value.

However, if you also have a large customer base or, for example, have a large staff and expertise in it, then all these are positions that have no significance in the substance value process. Nevertheless, these intangible assets should be included in the company valuation. Indeed, the simplified income-valuation method is appropriate because it indirectly captures these intangibles through the returns underlying this valuation method. In general, the intangible value of an undertaking can also be read from the difference between the values of the undertakings established by the two valuation methods.