VI key terms

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions.

The assumption that a valuation reflects what a typical buyer and seller in the relevant market would consider, rather than the specific views or plans of the current owner.

The use of an asset by market participants that is physically possible, legally permissible, financially feasible, and results in the highest value, whether or not it is the current use.

A three-level ranking of the inputs used in fair value measurement, from quoted prices in active markets for identical items to unobservable inputs based on the reporting entity's own assumptions.

A quoted price, unadjusted, in an active market for an identical asset or liability that the entity can access at the measurement date; the most reliable evidence of fair value.

Unobservable inputs for the asset or liability, used when relevant observable inputs are unavailable, reflecting the assumptions market participants would use in pricing the item.

A market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

The amount by which an option is in the money, equal to the difference between the underlying asset's current price and the option's strike price, floored at zero.

The portion of an option's premium exceeding its intrinsic value, reflecting the possibility that the option becomes more valuable before expiration.

A closed-form option pricing formula that values European options from the underlying price, strike price, time to expiration, volatility, risk-free rate, and expected dividends.

A family of valuation methods that converts expected future income or cash flows into a present value, using discounting or capitalization techniques.

A valuation approach that estimates value by comparing the subject to prices or multiples observed for similar assets or businesses in actual transactions or public markets.

A valuation approach that estimates value as the cost to reproduce or replace the asset, less physical deterioration and functional or economic obsolescence.

An income approach technique that projects future cash flows and discounts each to present value at a rate reflecting the time value of money and associated risk.

An income approach technique that converts a single representative earnings or cash flow measure into value by dividing it by a capitalization rate.

A divisor or multiplier applied to a single period's earnings to estimate value, reflecting required return and expected long-term growth in a stable setting.

The rate of return used to convert future cash flows into present value, reflecting the time value of money plus compensation for the risk of the investment.

The blended required return on a company's debt and equity, weighted by their proportions in the capital structure, often used to discount enterprise cash flows.

A method to estimate the cost of equity as the risk-free rate plus a beta-scaled market risk premium, sometimes with additional size or company-specific premiums.

A measure of how much an asset's returns move relative to the overall market, used to scale the market risk premium in estimating the cost of equity.

The estimated value of all cash flows beyond the explicit forecast period, often computed with a perpetuity growth formula or an exit multiple.

A formula that values an endless stream of cash flows growing at a constant rate, computed as next period's cash flow divided by the discount rate minus growth.

A market approach technique that derives pricing multiples from shares of publicly traded companies comparable to the subject and applies them to the subject's financial metrics.

A market approach technique that applies multiples observed in actual sales or acquisitions of similar businesses to the subject company's operating metrics.

The additional amount a buyer pays for a controlling interest, reflecting the ability to direct operations and decisions, above the price for a minority stake.

A reduction in value applied to a noncontrolling ownership interest because the holder lacks the power to direct the entity's operations and policies.

A reduction in value reflecting the difficulty and cost of quickly converting an ownership interest into cash compared with publicly traded shares.

A synonym for the discount for lack of marketability, applied because a privately held interest cannot be sold readily on an organized exchange.

The total value of a business's operating assets, equal to the value of equity plus interest-bearing debt minus cash, representing value available to all capital providers.

The value of the owners' residual interest in a business, equal to enterprise value less debt plus cash, and the direct output of a discounted dividend or free cash flow to equity model.

An intangible asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.

A nonmonetary asset without physical substance, such as a brand, patent, customer relationship, or software, that has identifiable economic value.

An income approach technique valuing an intangible asset as the present value of the royalties the owner avoids paying for use of the asset.

The current cost to construct an exact replica of an asset using the same materials and design, before deducting any depreciation.

The current cost to build an asset with equivalent utility using modern materials and methods, before deducting any depreciation.

A loss in value from an asset's design, capacity, or technology being less efficient or desirable than what is available in the market.

A loss in value caused by external factors outside the asset, such as market conditions, regulation, or location, rather than the asset's own design.

A comparison of an asset's carrying amount with its recoverable or fair value to determine whether a write-down must be recognized in the financial statements.

The amount at which an asset or liability is recorded on the balance sheet, net of accumulated depreciation, amortization, or impairment.

An attitude of questioning and critical assessment of evidence and assumptions, neither assuming dishonesty nor accepting information without sufficient verification.

The state of being free from relationships or interests that could impair, or appear to impair, objectivity and impartial judgment in a valuation engagement.