Valuation (finance)

In finance, valuation is the process of estimating what something is worth. Items that are usually valued are a financial asset or liability. Valuations can be done on assets (for example, investments in marketable securities such as stocks, options, business enterprises, or intangible assets such as patents and trademarks) or on liabilities (e.g., bonds issued by a company). Valuations are needed for many reasons such as investment analysis, capital budgeting, merger and acquisition transactions, financial reporting, taxable events to determine the proper tax liability, and in litigation.

Valuation overview

Valuation of financial assets is done using one or more of these types of models:

Valuation

Valuation may refer to:

Economics

Mathematics

Other

Valuation (measure theory)

In measure theory, or at least in the approach to it via the domain theory, a valuation is a map from the class of open sets of a topological space to the set positive real numbers including infinity. It is a concept closely related to that of a measure, and as such, it finds applications in measure theory, probability theory, and theoretical computer science.

Domain/Measure theory definition

Let be a topological space: a valuation is any map

satisfying the following three properties

The definition immediately shows the relationship between a valuation and a measure: the properties of the two mathematical object are often very similar if not identical, the only difference being that the domain of a measure is the Borel algebra of the given topological space, while the domain of a valuation is the class of open sets. Further details and references can be found in Alvarez-Manilla et al. 2000 and Goulbault-Larrecq 2002.

Continuous valuation

A valuation (as defined in domain theory/measure theory) is said to be continuous if for every directed family of open sets (i.e. an indexed family of open sets which is also directed in the sense that for each pair of indexes and belonging to the index set , there exists an index such that and ) the following equality holds:

Fundamental analysis

Fundamental analysis, in accounting and finance, is the analysis of a business's financial statements (usually to analyze the business's assets, liabilities, and earnings); health; and its competitors and markets. When applied to futures and forex, it focuses on the overall state of the economy, and considers factors including interest rates, production, earnings, employment, GDP, housing, manufacturing and management. When analyzing a stock, futures contract, or currency using fundamental analysis there are two basic approaches one can use: bottom up analysis and top down analysis. The terms are used to distinguish such analysis from other types of investment analysis, such as quantitative and technical.

Fundamental analysis is performed on historical and present data, but with the goal of making financial forecasts. There are several possible objectives: