“I have invested for years in machinery, equipment and a factory. Do these assets not add to my company's value?” Yes, they do. The important question is how their contribution is measured. For a going concern, productive equipment normally contributes through the cash flows it enables. Adding its standalone sale value on top of a business valuation that already includes those cash flows can count the same economic benefit twice.

Industrial company valuation is therefore more than multiplying EBITDA or totaling an asset register. It connects the physical production system with commercial demand, sustainable margins, maintenance needs, working capital and ownership rights.

All figures in this article are illustrative, not market benchmarks or client results. The cover is an AI-generated industrial illustration.

The direct answer: three different questions about the same machine

• What would it cost to replace? The price of an equivalent new machine, including relevant installation and commissioning costs, helps assess replacement economics. It is not automatically what a buyer would pay for the existing equipment.

• What could it sell for? A second-hand or orderly-disposal valuation considers condition, age, serviceability, demand, removal costs and the available sale period.

• What does it contribute to the operating business? Productive value depends on saleable output, margin, uptime, labor and energy requirements, and the investment needed to sustain future cash flows.

A machine can be expensive to replace but have limited resale demand because it is customized. Conversely, a depreciated machine can remain commercially valuable if it reliably produces profitable parts. Historical purchase cost, book value, resale value and contribution to a going concern answer different questions.

Why manufacturers need a different valuation analysis

Compared with many asset-light businesses, manufacturers must continually convert physical capacity into qualified output. Installed capacity alone does not prove earning capacity. A bottleneck in one production stage, missing certification, high scrap rates or dependence on a small number of skilled operators can prevent the rest of the line from delivering its theoretical output.

For example, a plant designed for 100,000 units but selling 55,000 cannot be valued as though the remaining 45,000 will be sold immediately at current margins. The forecast needs evidence of customer demand, qualification lead times, staffing, working capital and the cost of increasing utilization. Equally, low utilization may present a genuine opportunity where orders and execution capabilities are demonstrable.

We look at the link between orders, throughput, delivery performance and cash collection. Customer concentration, tooling ownership, product approvals and export dependence can matter as much as the number of machines on the shop floor.

Example: why “business value plus machinery” may be wrong

Assume a manufacturer's operating DCF is TRY 240 million. The forecast includes production using its existing machines and deducts the maintenance and replacement spending necessary to keep them operating. An equipment appraisal indicates TRY 90 million standalone machine value.

It would generally be incorrect to conclude that the business is worth TRY 330 million simply by adding the two. The DCF already reflects the economic contribution of those productive assets. The equipment appraisal remains useful: it can support asset-value analysis, financing discussions or a review of alternative uses. It does not become an automatic increment to going-concern value.

A different conclusion can apply to genuinely surplus assets. If an idle, separately saleable machine is unnecessary to forecast operations and its sale is not already included in forecast cash flows, its recoverable value after relevant costs and taxes may be considered separately. Whether the item is included in the transaction perimeter also matters.

Does the factory building get added separately?

Real estate requires the same consistency. Consider two ways of modeling an owner-occupied factory:

• Integrated approach: value the operating business using cash flows that benefit from occupying the owned facility, with appropriate property-related costs and reinvestment. Adding the full property value afterward can duplicate the benefit.

• Separated approach: charge a market rent in the operating forecast, value that rent-paying business, then assess the property separately under consistent assumptions and ownership scope.

A separate surplus parcel, unrelated rental property or unused building may need a distinct adjustment. Zoning, title, permitted use, environmental conditions, mortgages and transfer costs should be reviewed. An independent property specialist may be required; a company's accounting register is not a substitute for a property valuation.

Maintenance versus growth investment: the distinction that changes cash flow

EBITDA excludes depreciation and does not itself deduct capital expenditure. An investor still needs to know how much cash must be reinvested to maintain output. A plant reporting strong EBITDA because maintenance has been deferred may face a substantial catch-up investment after acquisition.

Suppose two factories each generate TRY 40 million EBITDA. Factory A requires TRY 8 million recurring maintenance investment; B requires TRY 18 million because of its equipment condition and process requirements. Before tax, working capital and other differences, B has TRY 10 million less annual cash available after that investment. Applying the same EBITDA multiple without analyzing this difference can mislead.

Growth investment should be modeled separately with its expected capacity, qualification period and incremental contribution. Not every machine purchase creates value: the present value of the additional cash it produces must justify the investment and execution risk. Depreciation is an accounting allocation; it is not always an adequate estimate of actual future replacement spending.

What we investigate in an industrial valuation

1. The asset register and operational reality

We reconcile available records to the stated production model: machine age and condition, major overhauls, critical spares, maintenance logs, downtime, warranty arrangements and ownership. Leased equipment, customer-owned tooling, liens and assets outside the transaction perimeter require separate treatment. Where needed, technical experts assess condition, remaining useful life and replacement alternatives.

2. Quality of earnings at production level

Reported gross margin can conceal unallocated scrap, rework, warranty claims, energy costs or inventory write-downs. We review customer and product profitability, revenue cut-off, rebates, inventory movements and exceptional items within the agreed scope. A higher valuation needs defensible earnings—not merely a larger adjustment list.

3. The cash conversion cycle

Raw materials, work in progress, finished goods and customer credit can tie up substantial funds. A manufacturer exporting on long contractual terms should be assessed against those economics, while overdue or disputed receivables are tested separately. Growth can require more stock and receivables before it delivers cash.

4. Country, currency and commercial positioning

We assess where sales, costs, borrowing and capital expenditure arise. Export revenue does not automatically eliminate currency risk if inputs, debt or customer pricing mechanisms create mismatches. Brands, proprietary designs, certifications and customer approvals can support pricing power or retention, but those benefits must be evidenced and reflected consistently.

5. Obligations that travel with the transaction

Debt, guarantees, overdue obligations, environmental exposure, employee liabilities and required remediation can affect equity value or transaction terms. Their treatment depends on the facts and deal structure. A share acquisition and an asset acquisition do not necessarily transfer the same obligations.

How the valuation methods work together

Lev Partners uses DCF to examine sustainable cash generation, listed-company and transaction multiples to test market context, and adjusted net asset value to assess the underlying asset position. We do not mechanically average their outputs. Their relevance changes depending on whether the business is a profitable going concern, undergoing restructuring, carrying surplus assets or facing closure.

A liquidation assessment should include realistic sale periods, removal costs, taxes and liabilities. It is not automatically a floor beneath going-concern equity value. Specialized machinery may sell at a discount when removed from the production system, and liabilities can absorb the proceeds.

For a company sale, we then bridge enterprise value to equity value, review normal working capital and distinguish a headline offer from cash at closing, deferred payments and contingent consideration.

What can a factory owner do before approaching investors?

• Maintain a reconciled fixed-asset register with title, financing and maintenance records.

• Separate usable capacity from theoretical capacity and document the bottlenecks.

• Demonstrate customer- and product-level margins after scrap, energy and rework.

• Prepare a credible maintenance and replacement plan; disclose deferred work early.

• Document certifications, customer approvals, order visibility and key-person dependencies.

• Identify surplus assets without weakening the production plan.

• Build a cash forecast connecting growth, inventory, collection terms and bank maturities.

These preparations help a buyer understand what the assets can earn and reduce uncertainty during due diligence. They cannot guarantee a particular price, but they make the value proposition clearer and more defensible.

Discuss your factory's value with Lev Partners

Erim N. Kargacı — Partner & M&A Director
Erim leads Lev Partners' company sale, acquisition and investor-search advisory work. Our valuation approach connects financial analysis with transaction preparation, alongside relevant technical and property specialists where required.

Contact us to discuss how your machinery, factory and operating performance contribute to company value. Include your sector, approximate revenue, production location and whether you are considering a sale, an investor or financing.

Explore M&A advisory, CFO services and our guide to debt, cash flow and value creation for manufacturers.

Methodology reference: CFA Institute, Free Cash Flow Valuation. This article explains general valuation principles; a specific conclusion requires verified financial, commercial and technical information.