What is Valuation?
Valuation is the process of calculating the current worth of an asset or liability. Examples of assets are stocks, options, companies, or intangible assets. Concerning liabilities, they can be bonds issued by a company.
Common terms used when discussing the value of an asset or liability are market value, fair value, and intrinsic value.
Put simply, the value to be derived is the present value of all the future benefits (or cashflow) of the given asset or liability. This can calculated in various ways, with the use of financial and valuation tools, to determine the magnitude and risk of such future benefits. Take the example of an analyst determining the value of a company. He will consider the company’s management, the composition of its capital structure, the prospect of future earnings and market value of assets to come to terms with its value.
Some sample ways to value assets and liabilities are the following:
Comparative valuation: Comparing the asset to other similar assets and evaluating its cashflow potential.
Future cash flows: the value of the asset can be based on future cash flows (that is, if they produce cash flows). For a stock, for example, it would stem from its dividends or share price appreciation. This can be done in multiperiod models (DCF models) or single period models (Gordon model).
Option pricing models: for particular types of financial assets. Black-Scholes-Option pricing model is one way of doing it.
All in all, Valuation in finance is key for many reasons. It is needed in investment analysis, capital budgeting and acquisitions transactions, financial reporting, or taxable events.
If you’d like some excel tools to facilitate valuation, you will find the above valuation techniques and many more on the Eloquens catalogue. Also, if you have any questions or would like to discuss matters about a given tool, you can contact our authors whom will happily get back to you.
For more in depth information about the subject, feel free to have a look through these links:
- Model for valuing options that result in dilution of the underlying stock.78 remove_red_eyefreeby Prof. Aswath Damodaran
Valuation of an Income Generating PropertyThis model can be used to value property124 remove_red_eye
Merger & LBO Model ValuationThis LBO model in excel analyzes the value of equity and the firm in a leveraged buyout operation.574 remove_red_eye
Cash Flow Return on Investment (CFROI) for a FirmThis model calculates CFROI223 remove_red_eye
Discounted Cash Flow (DCF) ModelA step by step discounted cash flow analysis tutorial (DCF model)2,015 remove_red_eye
Value of Control in a FirmThis model analyzes the value of control in a firm.369 remove_red_eye
Merger Synergy ValuationThis model estimates the value of synergy in a merger.152 remove_red_eye
Free Cash Flow for the Firm (FCFF) ValuationValue firms with operating income that is either positive or can be normalized to be positive169 remove_red_eye
FCFF (Free Cash Flow for the Firm) with exposure to country riskAllows the user to enter a measure of company exposure to country risk when making a valuation for a firm93 remove_red_eye
Gordon Growth ModelValue the equity in a stable firm paying dividends, with stable growth83 remove_red_eye
Free Cash Flow for the Firm (FCFF) Stable Growth ModelValue a stable firm on the basis of free cashflows to firm.86 remove_red_eye
Comparing Dividend Discount Model (DDM) and Free Cash Flow to Equity (FCFE) Models: Two Stage ValuationThis model compares the DDM and FCFE models for a Two Stage Valuation214 remove_red_eye
Valuation: Free Cash Flow to Firm (FCFF) vs Free Cash flow to Equity (FCFE)Valuation model that reconciles FCFF and FCFE313 remove_red_eye
Leveraged Buyout Analysis LBO ModelA step by step LBO analysis tutorial and LBO model excel template1,817 remove_red_eye
Abercrombie & Fitch Valuation ModelA full PDF of an Excel Valuation Model created for fundamental analysis of Abercrombie & Fitch ($ANF) in 200697 remove_red_eyefreeby Lindsay Meyer
All in One Private Equity ModelUsed by Investment Professionals at Private Equity and IB Firms917 remove_red_eye$180.00by John Swan
movieProperty Valuations ModelingSimple Property Valuation Model showing the 3 primary methods for valuing property assets.215 remove_red_eyefreeby Lance Rubin
Leveraged Buyout LBO Model TemplateA full Leveraged Buyout LBO model template for a project to understand its different components and work with your own.564 remove_red_eyefreeby John P. Burns
Startup Valuation VC Method + excel SpreadsheetExcel template made to understand how VCs value the money that will be used to invest in a startup348 remove_red_eyefreeby Serious Funding
Discounted Cash Flow (DCF) Model (Academic Quality)A simple DCF model serving as an academic exercise to understand how financial modeling works.429 remove_red_eyefreeby Joshua Wong
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