What is valuation?
In the present context, your valuation is an important weapon that provides you the power to negotiate. The negotiation can take the form of a wrangling-out of better terms in a possible strategic partnership to a better stock price in a money-making transaction with a potential buyer. Valuation Process: an Art and a Science Valuation is a fluid concept. The value of your company is a variable quantity that depends on many factors, such as the general economic outlook of the market and the specific sector; the objective of valuation; the nature, history and financial condition of your business; your earning and dividend paying capacity; management and strategy, market share and strategic positioning, risk/reward aspects, level of gearing (debt), etc. Corresponding to the changes brought about in any of these factors, your valuation is likely to change. Virtually anything can be valued, ranging from tangible assets such as real estate, hardware or market instruments such as stock, optio
Though it may sometimes seem like it, stock prices aren’t random. And the best investors know it. So how do investors decide whether or not a stock is a “buy”? Valuation. Discount your cash Put simply, valuation is the most important math in stock investing. You can calculate valuations in a number of ways. One of the most popular among investors is the discounted cash flow model, otherwise known as DCF. Here’s how Investopedia defines DCF: A valuation method used to estimate the attractiveness of an investment opportunity. DCF analysis uses future free cash flow projections and discounts them (most often using the weighted average cost of capital) to arrive at a present value, which is used to evaluate the potential for investment. If the value arrived at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one. Confused? At first I was, too. All you really need to understand is that DCF projects a company’s future cash flows and decide
Knowing what an asset is worth and what determines that value is a pre-requisite for intelligent decision making — in choosing investments for a portfolio, in deciding on the appropriate price to pay or receive in a takeover and in making investment, financing and dividend choices when running a business. The premise of valuation is that we can make reasonable estimates of value for most assets, and that the same fundamental principles determine the values of all types of assets, real as well as financial. Some assets are easier to value than others, the details of valuation vary from asset to asset, and the uncertainty associated with value estimates is different for different assets, but the core principles remain the same. This introduction lays out some general insights about the valuation process and outlines the role that valuation plays in portfolio management, acquisition analysis and in corporate finance. It also examines the three basic approaches that can be used to value a
