US GAAP does not permit firms to revalue the fixed assets on their balance sheets.
International standards may allow for revaluation if certain conditions are met or guidelines are followed, but the analyst may face challenges if companies regulated by different standards apply different techniques to revalue assets.
A financial analyst may need to revalue a company’s reported asset base in order to perform proper due-diligence when analyzing the firm for debt and/or equity valuation purposes.
If the analyst revises a company’s balance sheet asset values in an upward manner, then the analyst’s near term financial forecast for the company should show a decline in profit and asset turnover, as the firm is believed to be publicly reporting an insufficient depreciation expense. The higher asset base will drive a lower ROA.
