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The Functional Principle aggregates assets and liabilities based on the business operations to which they...

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Accounting

The Functional Principle aggregates assets and liabilities based on the business operations to which they belong. In corporate valuation, you use the functional principle because it is particularly useful to measure the capital employed by the different business areas and in the appraisal of the company's commercial and investment strategies. The functional principle has two main characteristics that point out several aggregations of value used in different approaches, followed by several valuation techniques. Also, it introduces the distinction between core operating assets and assets related to non-core or complementary businesses. Assets are those employed by units that do not belong to the core activity of the firm

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