What is Valuation?
Definition of Valuation
Valuation is a method of quantifying how much money something should be exchanged for today, considering future benefits.
Valuation is highly subjective, but it is easiest when one is considering the current value of tangible assets. For example, determining how much a willing buyer will pay a willing seller for a house right now is easier than determining the value of what a company’s brand recognition might be in 10 years.
Explanation of Valuation
Valuation is very critical in making business decisions such as:
· How much should we pay for the company?
· How much should we sell our company for?
· How much is the company worth?
· What is the value of the company against which debt is being issued?
· Is our company undervalued/vulnerable to a hostile bidder?
· Should our clients buy, sell or hold a given stock (fixed income security, option etc.,)?