What are some reasons for performing a valuation?

The purpose of valuation is to determine the worth of an asset or company and compare that to the current market price. This is done so for a variety of reasons, such as bringing on investors, selling the company, purchasing the company, selling off assets or portions of the business, the exit of a partner, or inheritance purposes.

What is the definition of valuation?

A valuation is the process of determining the fair market value of a company in a notional context, meaning that the valuation is a) time specific, b) there is no negotiation, and c) there is no exposure to the open market. Valuations are highly subjective calculations that aim to determine the fair market value of a company.

How does valuation help both the insured and insurer?

In the context of insurance, valuation refers to giving a dollar figure for assets to be insured. This way both the insured and the insurer know how much money the insurer will give to the insured in the event of a covered loss for the asset. Many insurance policies contain "valuation clauses."

How is valuation determined?

A valuation can be useful when trying to determine the fair value of a security, which is determined by what a buyer is willing to pay a seller, assuming both parties enter the transaction willingly. When a security trades on an exchange, buyers and sellers determine the market value of a stock or bond.