Showing posts with label economic value. Show all posts
Showing posts with label economic value. Show all posts

Saturday 10 March 2012

Economic value refers to intrinsic, long-term, ultimate value of an operating enterprise as determined by net cash flow analysis.

The term value can refer to either accounting value, market value, or economic value. 


Measures of accounting value include book value per share, net worth per share, net asset value per share, and net tangible asset value per share. 


Market value refers to common stock equity capitalization or financial "size", and is equal to the share price times the number of shares outstanding. Publicly-traded market value includes only those shares that are not held in private accounts. 


Measures of accounting value and market value can be used for quick mechanical screening criteria for filtering out common stocks for further investigation. 


In contrast, economic value refers to intrinsic, long-term, ultimate value of an operating enterprise as determined by net cash flow analysis using spreadsheets and formulas. 

Intrinsic value is independent of quoted market prices. Accounting value is commonly confused with economic value. 

Economic value can refer to either value in use or value in exchange.


Economic value can refer to either value in use or value in exchange.
  • For example, water has high value in use but due to an excess supply may have a low price or be free for the taking. 
  • Diamonds, in contrast, have high value in exchange due to their real or artificially-managed low supply relative to demand. 

The great 'paradox of value' was obvious when contrasting the useless dearness of the diamond to the cheapness of the water without which we cannot live.   A start is supposed to have been made at connecting value to a general theory of utility.  The apparent paradox between the value of water and diamonds is resolved by the difference between total utility and marginal utility.

Tuesday 10 November 2009

How to define the economic value of a business

Economic Value
Written by Bobby Jan for Gaebler Ventures

If you are looking to buy a business, it is important to understand how to define the economic value of a business. By looking at how much the business is worth through various business valuation lenses, you can determine what price you might be willing to offer.

If you are looking to business, it is important to determine the value of the business.
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Value comes in many different forms.

Some people buy certain businesses to increase their social standing while other run businesses as a hobby. Most entrepreneurs, however, are concerned with the economic value of a business.

There are many subtypes of economic value. This article will introduce some of them.

Book Value

The book value is the value of a business or a portion of a business that is stated in financial statements and accounting records. This value is often lower than the market value of a business due to tax considerations.

Fair Market Value or Market Value

Market Value often defined as the price the owner is willing to accept and that the buyer is willing to pay. There are many methods for determining the market value of a business. The most commonly used method is the discounted cash flow methods.

Going Concern Value

Going concern value is the value of the business as a whole and not the sum of its parts.

Goodwill Value

Goodwill includes:

The value of a business that is in excess of the total capital invested in the business.
The intangible assets of a business such as its brand name. For example, the Coca-cola brand name is worth billions.

Replacement Value

The replacement value of a business is determined by how much it will cost to replace the assets of a business.

Liquidation Value

The liquidation value is the net proceeds from selling a business. It is important, however, to take into account how the business will be liquidated. Namely, how much time does the business owner have to sell the business?

Cheng Ming (Bobby) Jan is an Economics major at the University of Chicago who has a strong interest in entrepreneurship and investing.

http://www.gaebler.com/Three-Principles-of-Business-Valuation.htm