ABV key terms

The value an asset would have to a well-informed analyst who understands all relevant facts, independent of how the market currently prices it. It reflects underlying economics rather than trading quotations.

The price at which property would change hands between a willing buyer and a willing seller, neither being under compulsion, both having reasonable knowledge of relevant facts, and with the asset exposed to the market for a reasonable period.

The value of an asset to a specific owner or prospective owner, based on that party's own requirements, expectations, and synergies. It can differ materially from what other market participants would pay.

The incremental worth created when two businesses or assets are combined and the merged entity produces more value than the sum of the parts, often through cost savings or revenue enhancements available only to the buyer.

The amount that could be realized by selling assets individually, typically under forced or time-constrained conditions. It is usually lower than value in continued use because assets are removed from an operating business.

The value of an operating business as an assembled, functioning enterprise, including goodwill and the benefit of an established workforce, customer base, and processes, rather than the sum of individual asset resale prices.

The value realized when assets are sold over a reasonable marketing period to willing buyers, rather than in a hurried forced sale. It sits between going-concern value and forced liquidation value.

The use of an asset that is legally permissible, physically possible, financially feasible, and produces the greatest value. It is assessed as of the valuation date and may differ from current use.

The assumed set of circumstances under which an asset is valued, such as continued operation, liquidation, or orderly transition. It frames which valuation methods and assumptions are appropriate.

The specific point in time as of which the value conclusion applies. Facts and market conditions after that date are generally not considered, even if known when the report is written.

A fact, transaction, or change in conditions occurring after the valuation date. Analysts must decide whether it confirms circumstances at the date or reflects new information that should be excluded from the conclusion.

An ownership stake that lacks the ability to direct the business or control decisions. Its value often reflects reduced influence, and it may or may not be subject to a discount depending on the standard of value and applicable law.

The additional amount a buyer pays above the market price of a minority stake to obtain a controlling interest, reflecting the ability to direct operations, appoint management, and set policy.

A reduction applied to a value estimate to reflect the difficulty and cost of selling an ownership interest quickly, especially where no public market exists and transfer restrictions apply.

A reduction applied when the subject interest lacks the power to influence business decisions, reflecting the impaired economic benefit of a non-controlling position relative to a controlling one.

A family of methods that converts expected future economic benefits into a present value, using either capitalization of a single representative benefit stream or discounting of projected cash flows.

A set of methods that derive value from observed prices or multiples of comparable assets or businesses, adjusting for differences in risk, growth, and scale between the comparables and the subject.

A method that values a business by adjusting its balance sheet assets and liabilities to current value, sometimes including separately identified intangible assets, and subtracting liabilities to reach equity value.

A technique that projects cash flows for several periods, discounts each to present value at a risk-adjusted rate, and adds a terminal value representing cash flows beyond the projection horizon.

A single-period technique that divides a representative earnings or cash flow measure by a capitalization rate, appropriate when the benefit stream is expected to grow at a stable, sustainable rate.

A divisor or percentage applied to a single period's earnings to estimate value. It typically equals the discount rate minus expected long-term growth, and thus embeds both risk and growth expectations.

The rate of return required by investors to commit capital to an investment, used to convert future cash flows into present value. It reflects the time value of money plus compensation for risk.

The blended required return on a company's debt and equity, weighted by their relative proportions at market value. It is commonly used to discount cash flows available to all capital providers.

A framework for estimating the required return on equity as a risk-free rate plus a beta-scaled market risk premium, with optional adjustments for size and company-specific risk.

A measure of how sensitive an asset's returns are to movements in the overall market. A beta above one indicates greater volatility than the market; it is a key input to equity cost of capital.

The estimated value of all cash flows beyond the explicit projection period, often computed using a perpetuity growth formula or an exit multiple applied to the final year's metric.

A market approach technique that applies pricing multiples derived from publicly traded companies similar to the subject to the subject's operating metric, then adjusts for size, growth, and liquidity differences.

A market approach technique that derives multiples from prices paid in actual acquisitions of similar businesses. Transactions often include control, so resulting values may require adjustment for the subject's ownership characteristics.

A balance-sheet measure in which reported asset and liability amounts are restated to fair value, including recognition of previously unrecorded intangibles, to approximate the value of the business's net assets.

The intangible value arising from a business's reputation, customer relationships, workforce, and other factors that cannot be individually identified and valued, often measured as the excess of business value over net asset value.

An intangible asset valuation technique that estimates the present value of royalties the owner avoids paying by owning the asset rather than licensing it from a third party.

A technique that compares a business's earnings to a required return on its net tangible assets, then capitalizes the surplus earnings to value intangible assets such as goodwill.

The relative ease and speed with which an ownership interest can be converted to cash at a fair price. Interests in private companies typically have limited marketability compared with publicly traded shares.

Changes made to reported financial statements to remove nonrecurring items, correct for owner-specific compensation, and align accounting to economic reality so that the earnings used in valuation reflect sustainable operations.

A written agreement defining the scope of a valuation assignment, including the subject, intended use, standard of value, valuation date, and the analyst's responsibilities and limitations.

The documented description of the research, analysis, and procedures the analyst will perform, including data sources and the extent of investigation, agreed with the client before work begins.

The written communication of a valuation conclusion that states the subject, valuation date, standard and premise of value, methods applied, key assumptions, and supporting analysis in sufficient detail for the intended user.

The specific purpose for which a valuation is performed, such as litigation, tax reporting, or a transaction. It determines the appropriate standard of value and the required depth of analysis and disclosure.

The party or parties the analyst expects to rely on the valuation report. Limiting reliance to identified users protects the analyst from liability to unknown third parties.

The definition of the type of value being sought, such as fair market value, fair value, or investment value. It governs the assumptions and adjustments used in the analysis.

The state of being free from financial or personal interests that could compromise objectivity in a valuation. Analysts must disclose any relationships or fees contingent on the conclusion reached.

The quality of forming conclusions based on evidence and sound analysis rather than bias, client preference, or advocacy. It requires impartial consideration of facts that both support and contradict the conclusion.

The diligence and competence expected of a valuation professional, including adequate research, appropriate application of methods, and review of the work before issuing a conclusion.

Compensation that depends on the outcome of the valuation, such as a percentage of the concluded value. Such arrangements are widely prohibited because they threaten the analyst's independence and objectivity.

An assumption that something contrary to what actually exists or is known at the valuation date is true, used to explore a scenario. It must be clearly disclosed in the report.

An assumption about facts that are unknown or uncertain at the valuation date but treated as true for the analysis. If the assumption proves false, the value conclusion may change materially.

The final analytical step in which the analyst weighs the indications of value from each method applied, explains why one is given more weight, and arrives at a single value conclusion.