Valuation is the process of "estimating" the value of an asset (liability). The value is the price of the asset (liability) times the quantity held. Valuations are required in many contexts including all industries, finance, property management and the antiques industry.

Generally speaking in advanced economies the valuation rests on some estimate of current price, or estimated fair price now, rather than the The book value of an asset or group of assets is sometimes the price at which they were originally acquired (historic cost), in many cases equal to purchase price. Net book value The term is often used interchangeably with net book value, which is the original acquisition cost, less accumulated... book value or the book price (the latter being the acquisition cost of the asset or liability, or the Depreciation is an estimate of the decrease in the value of an asset, caused by wear and tear or by obsolescence. The use of depreciation affects a companys (or an individuals) financial statements, and, in some countries, their taxes. In economics, depreciation is the decrease in value of... depreciated book value, rather than its value now).

In the financial industry, valuations are required for all financial assets (liabilities), for various reasons including tax, regulatory and accounting (including reporting to owners and stakeholders). The valuations are as of a specific date e.g., the end of the accounting quarter or year. They may alternatively be In economics, mark to market is the act of assigning a value to a position held in a tradeable financial instrument based on the current market price for that instrument. History and development The practice of mark to market as an accounting device first developed among traders in futures exchanges... mark-to-market (estimates of the current value of assets {liabilities} as of this minute or this day) for the purposes of managing portfolios and associated financial risk (e.g., within large financial firms including investment banks and stockbrokers).

Some assets (liabilities) are much easier to value than others. Publicly traded shares and bonds etc. have prices that are quoted frequently and sometimes minute to minute. Other assets are hard to value, as private firms that have no frequently quoted price; and financial instruments that have prices that are partly dependent on theoretical constructs of one kind or another. For example, options are generally valued using the The Black-Scholes model, often simply called Black-Scholes, is a model of the varying price over time of financial instruments, and in particular stocks. The Black-Scholes formula is a mathematical formula for the theoretical value of European put and call stock options that may be derived from the... Black and Scholes model, whilst the liabilities of Life Assurance (Life Insurance in US English) is insurance of peoples lives where it is certain that a payment will be made. That is, whereas e.g. non-life insurance might pay out if the contingency occurs that justifies payment (e.g. a fire in the case of fire... life assurance firms are valued using the theory of The present value of a future transaction is the nominal amount of money to change hands, adjusted to account for the time value of money. A given amount of money is almost always more valuable sooner than later, so present values are generally smaller than corresponding future values. The simplest... present value.

It is possible and conventional for financial professionals to make their own estimates of the valuations of assets (liabilities) that they are interested in, and their calculations are of various kinds including analyses of companies that focus on price-to-book, price-to-earnings, price-to-cashflow and present value calculations, and analyses of bonds that focuses on credit ratings (e.g. assessments of default risk), risk premia and levels of real interest rates. All of these approaches may be thought of as creating estimates of value that compete for credibility with the prevailing share or bond prices (where applicable) and may or may not result in buying or selling by market participants.

It is very important to note that valuation is more an art than a science:

1) There are very different situations and purposes in which you value an asset (e.g. company in distress, tax purposes, mergers & acquisitions, quarterly reporting). In turn this requires different methods or a different interpretation of the same method each time.

2) All valuation models and methods have their limitations (e.g., mathematical, complexity, simplicity, comparability) and could be widely criticized. As a general rule the valuation models are most useful when you use the same valuation method as the "partner" you are interacting with. Mostly the method used is industry or purpose specific;

3) In all valuation models there are a great number of assumptions that need to be made and things might not turn out the way you expect. Your best way out of that is to be able to explain and stand for each assumption you make;

4) If feasible, the valuation where there are a lot of intangibles is linked to an interaction process with a potential "partner" . The main intangible is demand and supply. Preparation and negotiation strategy is others. To have alternative partners is a third.

When a valuation is prepared all assumptions should be clearly stated, especially the context. It is improper, for example, to value a going concern, based on an assumption that it is going out of business, since then only a salvage value remains.

Asset pricing models

See also Capital Market Line Modern portfolio theory (MPT) proposes how rational investors will use diversification to optimize their portfolios, and how an asset should be priced given its risk relative to the market as a whole. The basic concepts of the theory are the efficient frontier, Capital Asset Pricing Model and... Modern portfolio theory

• The capital asset pricing model (CAPM) is used in finance to determine a theoretically appropriate price of an asset such as a security. The formula takes into account the assets sensitivity to non-diversifiable risk (also known as systematic risk or market risk), in a number often referred to... Capital asset pricing model (CAPM)
• Arbitrage pricing theory (APT) holds that the expected return of a financial asset can be modelled as a linear function of various macro-economic factors, where sensitivity to changes in each factor is represented by a factor specific beta coefficient. The model derived rate of return will then be used... Arbitrage pricing theory (APT)
• Intertemporal CAPM (ICAPM)
• Consumption based CAPM (CCAPM)
• The Black-Scholes model, often simply called Black-Scholes, is a model of the varying price over time of financial instruments, and in particular stocks. The Black-Scholes formula is a mathematical formula for the theoretical value of European put and call stock options that may be derived from the... Black-Scholes (for In finance, an option is a contract whereby the contract buyer has a right to exercise a feature of the contract (the option) at future date (the exercise date), and the writer (seller) has the obligation to honour the specified feature of the contract. Since the option gives the buyer... Options)

Valuation of Intellectual Property

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