ABV flashcards
ABV · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Enterprise value
- The total value of a business's operating assets, equal to equity value plus interest-bearing debt, preferred stock, and noncontrolling interest, less cash and non-operating assets.
- Equity value
- The value of the owners' residual interest in a business after all liabilities are satisfied; it equals enterprise value less net debt and other senior claims.
- Fair market value
- The price at which property would change hands between a hypothetical willing buyer and seller, neither under compulsion, both reasonably informed, as of a stated date.
- Investment value
- The value of a business to a specific owner or prospective owner based on that party's individual investment requirements, synergies, and expectations.
- Going-concern premise
- A valuation premise assuming the business continues operating and realizes value from ongoing operations rather than from piecemeal disposal of its assets.
- Liquidation value
- The amount realized from disposing of assets, either in an orderly sale over time or a forced sale, after satisfying liabilities and disposal costs.
- Control premium
- An increment above minority share value reflecting the benefits of controlling a business, such as directing operations, cash flows, and dividend policy.
- Discount for lack of marketability
- A reduction in value reflecting the inability to quickly convert an ownership interest to cash at a known price in a public market.
- Income approach
- A valuation approach that estimates value by discounting or capitalizing expected future economic benefits to their present value at a risk-adjusted rate.
- Discounted cash flow method
- An income approach method projecting periodic cash flows and a terminal value, then discounting them to present value at an appropriate risk-adjusted discount rate.
- Capitalized cash flow method
- An income approach method dividing a single representative expected cash flow by a capitalization rate equal to the discount rate minus expected growth.
- Gordon growth model
- A perpetuity formula where terminal value equals next-period cash flow divided by the difference between the discount rate and the sustainable growth rate.
- Weighted average cost of capital
- The blended required return on a firm's debt and equity, weighted by market value proportions, with debt cost adjusted for the tax shield.
- CAPM
- A model estimating required equity return as the risk-free rate plus beta times the equity risk premium, sometimes with size and specific-risk premiums added.
- Beta
- A measure of a stock's sensitivity to systematic market movements; it scales the equity risk premium in the capital asset pricing model.
- Market approach
- A valuation approach that estimates value by comparing the subject to similar businesses using pricing multiples derived from public companies or transactions.
- Guideline public company method
- A market approach method applying multiples observed for publicly traded comparable companies to the subject's financial metric, often with a marketability discount.
- Guideline transaction method
- A market approach method using multiples from completed acquisitions of comparable businesses, typically reflecting control and synergies realized in those deals.
- Asset-based approach
- A valuation approach that values a business by restating its assets and liabilities to fair value, most relevant for asset-intensive or holding companies.
- Excess earnings method
- A hybrid method capitalizing earnings above a fair return on net tangible assets into an intangible value, then adding fair value of net tangible assets.
- Terminal value
- The estimated value of all cash flows beyond the explicit forecast period, often computed using a perpetuity growth or exit multiple assumption.
- Reconciliation
- The process of weighing the results of multiple valuation methods and explaining why the selected conclusion of value is most supportable.
- Valuation date
- The specific date as of which the value conclusion applies; it fixes the information set used and may differ from the report date.
- Intended use
- The purpose for which a valuation is prepared, such as litigation, tax, or transaction support, which drives scope, assumptions, and reporting requirements.
- Hypothetical condition
- An assumption that something contrary to what exists at the valuation date is true, which must be disclosed and its effect on value explained.
- Extraordinary assumption
- An assumption about a condition that is uncertain or unknown at the valuation date and could, if false, materially change the value conclusion.
- Scope of work
- The extent of research, analysis, and reporting the appraiser determines is necessary to produce credible results for the intended use.
- USPAP
- Uniform Standards of Professional Appraisal Practice, which set requirements for appraisal development, reporting, and the appraiser's certification in the United States.
- Independence
- A state in which the appraiser has no financial or personal interest in the subject or outcome that could bias the valuation conclusion.
- Objectivity
- The quality of forming conclusions based on evidence and sound analysis rather than on the client's preferences or a desired result.
- Contingent fee
- A fee arrangement tied to the outcome or value conclusion of the engagement, which compromises independence and is generally prohibited in valuation work.
- Conflict of interest
- A circumstance where the appraiser's other interests or relationships could impair impartiality; it must be disclosed and appropriately managed.