It should be less exposed to market moods and perceptions. (Advantage)

is much more likely to reflect market perceptions and moods than discounted cash flow valuation. (Advantage)

generally requires less explicit information than discounted cash flow valuation

is the right way to think about what you are getting when you buy an asset.

an analytical process that links risk and return to estimate the current (or projected) worth of an asset or a firm.

is the accounting value of a firm or an asset. It is a historical value rather than a current value. Firms usually report this type of value on a per share basis

Reasons for uncertainty

is the value of a firm as an operating business. This type of value depends on the firm’s ability to generate future cash flows rather than on its balance sheet assets.

It is difficult to estimate (Disadvantage)

forces you to think about the underlying characteristics of the firm, and understand its business. (Advantage)

to track the effectiveness of your strategic decision-making process and provide the ability to track performance in terms of estimated change in value, not just in revenue. This helps you to take a holistic look at your business and make decisions that are highly Impactful for your bottom line.

Limitations of Valuation

is the price that the owner can receive from selling an asset in the market place. The key determinant of this type of value is supply and demand for the asset. For stocks and bonds, this values reflect current market prices

The source of bias

The HOW'S of Valuation

the process that links risk and return to estimate the current (or projected) worth of an asset or a firm.

also called fundamental value, is a measure of the theoretical value of an asset. Because determining the this value requires estimates. Serves as a basis for determining whether to buy or sell a financial asset when compared to its market value or price.

the determination of the monetary value at some specific date, of the property rights encompassed in an ownership

It can be manipulated by the analyst to provide the conclusion that he or she wants (Disadvantage)

means the exclusive right to possess, enjoy and dispose

Requires application of logical principles and tested methods leading to estimate of value under given circumstances. In short, valuation is both science and art as well.

require less information in the way in which most analysts and portfolio managers use it. However, this is because implicit assumptions are made about other variables (Disadvantage).

is the amount of money that a firm would realize by selling its assets and paying off its liabilities.

a valuation method used to estimate the value of an investment based on its expected future cash flows. It attempts to figure the present value of the investment based on how much money it will generate in the future

The value of any asset can be estimated by looking at how the market prices “similar” or "comparable” assets

is built on the assumption that markets are correct in the aggregate, but make mistakes on individual securities. To the degree that markets can be over or under valued in the aggregate, relative valuation will fail. (Disadvantage)

Cost of Complexity