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Valuation

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Definition of Valuation

Valuation Image 1

Valuation

Estimation of worth.


Valuation

The act or process of determining the value or price of something. (see fair market value)


Valuation

The process of estimating the value of financial assets or
securities



Related Terms:

Beggar-thy-neighbor devaluation

A devaluation that is designed to cheapen a nation's currency and thereby
increase its exports at other countries' expense and reduce imports. Such devaluations often lead to trade wars.


Devaluation

Fall in the government-determined fixed exchange rate.


Devaluation A decrease in the spot price of the currency




Evaluation period

The time interval over which a money manager's performance is evaluated.


Performance evaluation

The evaluation of a manager's performance which involves, first, determining
whether the money manager added value by outperforming the established benchmark (performance
measurement) and, second, determining how the money manager achieved the calculated return (performance
attribution analysis).


Valuation Image 2

performance evaluation

the process of determining the degree
of success in accomplishing a task; it equates to both
effectiveness and efficiency


Revaluation

An increase in the foreign exchange value of a currency that is pegged to other currencies or gold.


Valuation Allowance

A contra- or reduction account to deferred tax assets.
The valuation allowance represents that portion of total deferred tax assets that the firm judges is unlikely to be realized. The probability threshold applied in evaluating realization is 50%. That is, if it is more than 50% likely that some or all of a deferred tax asset will not be realized, then a valuation allowance must be set off against part or all of the deferred tax asset.


Valuation Date

Date on which valuation occurs.


actual cost system

a valuation method that uses actual direct
material, direct labor, and overhead charges in determining
the cost of Work in Process Inventory


Beggar-thy-neighbor

An international trade policy of competitive devaluations and increased protective
barriers where one country seeks to gain at the expense of its trading partners.


Bogey

The return an investment manager is compared to for performance evaluation.


Book value per share

The ratio of stockholder equity to the average number of common shares. Book value
per share should not be thought of as an indicator of economic worth, since it reflects accounting valuation
(and not necessarily market valuation).


Counterpart items

In the balance of payments, counterpart items are analogous to unrequited transfers in the
current account. They arise because the double-entry system in balance of payments accounting and refer to
adjustments in reserves owing to monetization or demonetization of gold, allocation or cancellation of SDRs,
and revaluation of the various components of total reserves.


Valuation Image 3

Dollar return

The return realized on a portfolio for any evaluation period, including (1) the change in market
value of the portfolio and (2) any distributions made from the portfolio during that period.


Dollar-weighted rate of return

Also called the internal rate of return, the interest rate that will make the
present value of the cash flows from all the subperiods in the evaluation period plus the terminal market value
of the portfolio equal to the initial market value of the portfolio.



expected standard

standard set at a level that reflects what
is actually expected to occur in the future period; it anticipates
future waste and inefficiencies and allows for them;
is of limited value for control and performance evaluation purposes


FIFO (First In, First Out)

An inventory valuation method that presumes that the first units received were the first ones
sold.


First-in, first-out (FIFO)

An inventory valuation method under which one assumes that the
first inventory item to be stored in a bin is the first one to be used, irrespective of
actual usage.


Fundamental analysis

Security analysis that seeks to detect misvalued securities by an analysis of the firm's
business prospects. Research analysis often focuses on earnings, dividend prospects, expectations for future
interest rates, and risk evaluation of the firm.


Geometric mean return

Also called the time weighted rate of return, a measure of the compounded rate of
growth of the initial portfolio market value during the evaluation period, assuming that all cash distributions
are reinvested in the portfolio. It is computed by taking the geometric average of the portfolio subperiod
returns.


Hedge fund

A fund that may employ a variety of techniques to enhance returns, such as both buying and
shorting stocks based on a valuation model.


Last-in, first-out (LIFO)

An inventory valuation method under which one assumes that the
last inventory item to be stored in a bin is the first one to be used, irrespective of
actual usage.


LIFO (Last-in-first-out)

The last-in-first-out inventory valuation methodology. A method of valuing
inventory that uses the cost of the most recent item in inventory first.


LIFO (Last In, First Out)

An inventory valuation method that presumes that the last units received were the first ones
sold.


Lower of cost or market

An accounting valuation rule that is used to reduce the
reported cost of inventory to its current resale value, if that cost is lower than its
original cost of acquisition or manufacture.



Margin requirement (Options)

The amount of cash an uncovered (naked) option writer is required to
deposit and maintain to cover his daily position valuation and reasonably foreseeable intra-day price changes.


Mean-variance analysis

Evaluation of risky prospects based on the expected value and variance of possible outcomes.


Modern portfolio theory

Principles underlying the analysis and evaluation of rational portfolio choices
based on risk-return trade-offs and efficient diversification.


normal cost system

a valuation method that uses actual
costs of direct material and direct labor in conjunction with
a predetermined overhead rate or rates in determining the
cost of Work in Process Inventory


Panel on Audit Effectiveness

A special committee of the Public Oversight Board that was created
to perform a comprehensive review and evaluation of the way independent audits of financial
statements of publicly traded companies are performed. The panel found generally that the
quality of audits is fundamentally sound. The panel did recommend the expansion of audit steps
designed to detect fraud.


performance management system

a system reflecting the entire package of decisions regarding performance measurement and evaluation


preference decision

the second decision made in capital project evaluation in which projects are ranked according to their impact on the achievement of company objectives


Pricing efficiency

Also called external efficiency, a market characteristic where prices at all times fully
reflect all available information that is relevant to the valuation of securities.


PV (present value of cash flows)

the value in today’s dollars of cash flows that occur in different time periods.
present value factor equal to the formula 1/(1 - r)n, where n is the number of years from the valuation date to the cash flow and r is the discount rate.
For business valuation, n should usually be midyear, i.e., n = 0.5, 1.5, . . .


Ratings

An evaluation of credit quality Moody's, S&P, and Fitch Investors Service give to companies used by
investors and analysts.


Regulatory surplus

The surplus as measured using regulatory accounting principles (RAP) which may allow
the non-market valuation of assets or liabilities and which may be materially different from economic surplus.


Return

The change in the value of a portfolio over an evaluation period, including any distributions made
from the portfolio during that period.


Risk indexes

Categories of risk used to calculate fundamental beta, including (1) market variability, (2)
earnings variability, (3) low valuation, (4) immaturity and smallness, (5) growth orientation, and (6) financial risk.


Risk premium approach

The most common approach for tactical asset allocation to determine the relative
valuation of asset classes based on expected returns.


SPECIFIC INVOICE PRICES

An inventory valuation method in which a company values the items in its ending inventory based
on the specific invoices on which they were bought.


standard cost system

a valuation method that uses predetermined
norms for direct material, direct labor, and overhead
to assign costs to the various inventory accounts and
Cost of Goods Sold


Subperiod return

The return of a portfolio over a shorter period of time than the evaluation period.


Temporal method

Under this currency translation method, the choice of exchange rate depends on the
underlying method of valuation. Assets and liabilities valued at historical cost (market cost) are translated at
the historical (current market) rate.


Terminal value

The value of a bond at maturity, typically its par value, or the value of an asset (or an entire
firm) on some specified future valuation date.


Total return

In performance measurement, the actual rate of return realized over some evaluation period. In
fixed income analysis, the potential return that considers all three sources of return (coupon interest, interest
on interest, and any capital gain/loss) over some i nvestment horizon.


Treynor Index

A measure of the excess return per unit of risk, where excess return is defined as the
difference between the portfolio's return and the risk-free rate of return over the same evaluation period and
where the unit of risk is the portfolio's beta.


WEIGHTED AVERAGE

An inventory valuation method that calculates a weighted average cost per unit for all the goods available for sale.
Multiplying that figure by the total units in ending inventory gives you the inventory’s value.


Write-Down

A reduction in the balance-sheet valuation of an asset with an accompanying
expense or loss recorded in earnings.



 

 

 

 

 

 

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