What is valuation & how does it work?

Valuation refers to the process of determining the present value of a company, investment or an asset. There are a number of common valuation techniques, as described below. Analysts who want to place a value on an asset normally look at the prospective future earning potential of that company or asset.

What is an example of valuation?

A common example of valuation is a company's market capitalization. This takes the share price of a company and multiplies it by the total shares outstanding. For example, if a company's share price is $10, and the company has 2 million shares outstanding, its market capitalization would be $20 million.

Why do analysts do a valuation?

Analysts do a valuation to determine whether a company or asset is overvalued or undervalued by the market. Absolute valuation models attempt to find the intrinsic or "true" value of an investment based only on fundamentals.