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Valuation

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Definition
Valuation is the process of determining the current (or future) worth of an asset or a company. 

Valuation has many applications in both private and public sectors. It can be used in many settings, including finance, accounting, real estate and business.

In finance, it is used to determine the value of stocks and bonds

In real estate, it is used to determine the value of a property. 

In accounting, it can be applied across a wide range of industries from manufacturing to retail sales. 

There are many methods for measuring valuation such as discounted cash flow analysis and price-earnings ratio analysis for stock valuations and cost approach and market approach for real estate appraisals.

What is the purpose of valuation?

  • To determine the price of a company in an acquisition (or sale)
  • To give investors an idea of how much they’re paying for stock in a company
  • To calculate the value of products on retail shelves, so that you know what to charge for them
  • To determine whether your business has the potential to grow and make more money through expansion or investment in new technologies.

How do you calculate valuation?

If you want to calculate the value of an asset, you must know its current market value.

This is the price that a willing buyer would pay for it and a willing seller would accept.

This takes into account relevant factors such as location, condition and functionality, for example, when calculating the price tag on a property.

When determining stock value, for example, investors consider factors such as earnings per share and market capitalization in order to determine how much a company is worth.

To determine the value of your company you need to look at its current liabilities (debts) and how much money it’s making in sales each month.

You can do this by looking at your financial reports or checking with your financial advisor.

Methods of valuation

Valuation methods can be divided into two main categories: direct and indirect.

Direct involves increasing the value of a company by improving its performance and operations.

Indirect involves looking at comparable companies in order to determine their market value.


Learn more about finance

No matter your level of financial literacy, we have more than enough financial education resources to get you started. Also, with our wealth management app, you can easily save, invest, and begin your own path to financial independence.


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