Valuation is the analytical process of determining the current (or projected) worth of an asset or a company. This process can involve both subjective estimates and objective measurements. The valuation process takes into account a multitude of factors, including the company’s financial performance, assets, market value of similar companies, future revenue prospects, and overall economic conditions. Different methods can be used for valuation, such as discounted cash flow (DCF) analysis, comparables method, and asset-based valuation, each suitable for different scenarios and types of assets.
The intrinsic value of an asset is determined by the cash flows you expect that asset to generate over its life and how uncertain you feel about these cash flows.
Aswath Damodaran
In Simpler Terms
Let’s say you’re thinking of selling your car. You’d look at its make, model, year, condition, and mileage. Then, you’d probably check online listings to see what similar cars are selling for. This process is akin to a simplified valuation, combining what you know about your car with market data to create a fair price.
