Valuation definition

Valuation is the process of estimating the worth of an asset, business, security, or investment. It produces a figure that investors weigh against the current market price to judge whether something is cheap or expensive.

Valuation draws on different methods depending on the asset. Common approaches include discounted cash flow analysis, comparable company analysis, precedent transaction analysis, asset-based valuation, and multiples such as the P/E ratio or EV/EBITDA. A valuation is an estimate, not a fixed price, because its assumptions about growth, cash flow, and interest rates can change.

Valuation is the umbrella term over several specific measures of worth. Market value is the price the asset trades at now. Fair value is a reasoned estimate of what it should trade at. Intrinsic value is its worth from fundamentals alone. Book value is its accounting worth on the balance sheet. Valuation is the process; each of these is one possible output.