Valuation Midterm Flashcards
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Key Principles in Valuation
Key Principles in Valuation
1.The Value of a business is defined only at a specific point in time.
2. Value varies based on the ability of business to generate future cash flows.
3.Market dictates the appropriate rate of return for investors
4. Firm value can be impacted by underlying net tangible assets
5. Value is influenced by the transferability of future cash flows, and
6. Value is impacted by liquidity
how much a particular object is worth a particular set of eyes
value
according to the CFA Institute, _____ is a estimation of an asset’s value
valuation
valuation places great emphasis on the ______ that are associated in the exercise.
professional judgement
value of a business three major factors
current operations
future prospects
embedded risks
value of business that shows how is the operating performance
current operations
value of business that reflects what is the long term and strategic decision
future prospects
value of business that hows what are the business risks involved
embedded risk
assuming there is a hypothetically complete understanding
intrinsic value
companies who are severe financial distress
liquidation value
going concern assumption
going concern value
- price express in terms of cash equivalents
- compulsion to buy or sell and when both have reasonable knowledge of the relevant facts.
fair market value
financial managers managing the investment portfolio
portfolio management
person who are interested in understanding and measuring the intrinsic value of a firm
fundamental analysis
refer to the characteristics of an entity
fundementals
who is tend to look for companies of an entity
activist investors
imply investors psychology and will predict the future movements in stock prices
chartists
getting information about firms
information traders
under portfolio management, the following activities can be performed through the use of valuation techniques
stock selection
deducing market expectation
separating a segment or component of business
spin off
sale of a major component or segment of a business
divestiture
two companies combined to form a wholly new entity
mergers
buying firm and the selling firm
acquisitions
acquisitions of another business by using significant debt
leveraged buy-out
_____ assumes that a combine value of two firms will be greater that the sum of separate firms
synergy
____ deals with prioritizing and distributing financial resources
corporate finance
key principles in valuation refers to business tend to change every day as transaction happens
the value of a business is defined only at a specific point in time
refers to the possible range of value
uncertainty
key principles in valuation refers to general concepts for most valuation techniques put emphasis on future cash flows
values varies based on the ability of business to generate future cash flows
key principles in valuation refers to market forces are constantly changing, and they normally provide guidance of what rate of return should investors expect
market dictates appropriate rate of return for investors
key principles in valuation refers to business valuation principles took at the relationship between operational value of an entity and net tangible of its assets
firm value can be impacted by underlying net tangible assets
key principles in valuation refers to transferability of future cash flows is also important especially to potential acquirers
value is influenced by transferability of future cash flows
key principles in valuation refers to the principle is mainly dictated by the theory of demand and supply
value is impacted by liquidity
yield future economics benefits as a result of past transactions
asset
they will grow in the future because of historical proof
brown field investments
benefits of having a sound enterprise-wide risk management system
- manage performance of all business risks
- enhance business resilience against changes
- improve distribution of resources across the firm
advantages of using asset-based methods
enables stakeholders to validate firm value based on the value of assets it currently own
value recorded in the accounting books
book value
receivables that are collectible after 60days
current assets
net book value of assets
total shareholders’ equity
book value also reflects
historical value
books values has its advantages except
validated by a third party expert with knowledge on how much assets are sold in the open market
cost of similar assets
replacement cost
affects the replacement value except
original acquisition cost of the asset
value of the insurance premium
replacement cost
valuators tend to consult with
appraisers
difference of book value and replacement value
bv can be computed form the financial statements while rv is gathered by employing services of an appraiser.
method is appropriate in valuing assets
book value method
reproduction value method is appropriate except
business that use equipment supplied by the third party manufacturer
reproduction value
estimate of cost of reproducing, creating, developing or manufacturing a similar asset internally
limitation imposed by the use of reproduction value method
difficulty in validation reasonables of calculated value because of limited comparators
show the most recent value of the firm assets
- replacement value method
- liquidation value method
- reproduction value method
deduct the asset value
total liabilities
