CVA key terms

A valuation method that converts expected future economic benefits, such as cash flows or earnings, into a present value using a discount or capitalization rate reflecting risk and timing.

A valuation method that estimates value by comparing the subject business or asset to prices paid for similar businesses or assets in actual transactions or public markets.

A valuation method that estimates value from the fair market value of a company's individual assets less its liabilities, often used for holding companies or firms without meaningful earnings.

An income approach technique that projects future cash flows and discounts each to present value, capturing growth and risk that a single-period multiple cannot reflect.

An income approach technique that divides a single representative earnings measure by a capitalization rate to convert one period of expected benefit into an indicated value.

A rate of return used to convert future cash flows into present value, reflecting the time value of money plus the risk specific to the investment being valued.

A divisor applied to a single period of expected earnings to derive value; it equals the discount rate minus expected long-term growth, expressed as a percentage.

The blended required return on a company's debt and equity, weighted by their market value proportions, commonly used as the discount rate for enterprise-level cash flows.

A model that estimates the required return on equity as a risk-free rate plus a beta-adjusted equity risk premium, sometimes with size and company-specific adjustments.

A measure of how much a stock's returns move relative to the overall market, used in cost-of-equity models to scale the equity risk premium for systematic risk.

The additional return investors expect from investing in equities rather than risk-free securities, used as an input when building up a required rate of return.

A cost-of-equity technique that adds risk premiums to a risk-free rate for equity risk, size, industry, and company-specific factors, often used for closely held businesses.

An increment added to a discount rate to reflect risks unique to one company, such as customer concentration, key-person dependence, or limited access to capital.

The estimated value of all cash flows beyond the explicit projection period in a discounted cash flow analysis, usually calculated with a perpetuity growth or exit multiple.

A market approach technique that derives valuation multiples from publicly traded companies comparable to the subject and applies them to the subject's operating metric.

A market approach technique that uses pricing multiples from completed mergers and acquisitions of similar companies, often reflecting control and synergies.

A ratio of business value to a financial metric such as revenue or EBITDA, used to apply market evidence to the subject company's performance.

Earnings before interest, taxes, depreciation, and amortization; a common proxy for operating cash flow used in multiples and comparisons across capital structures.

Adjustments that restate historical financial results to reflect typical economic performance, removing nonrecurring items, excessive owner compensation, or related-party terms.

The price at which property would change hands between a willing buyer and seller, neither under compulsion, both having reasonable knowledge of relevant facts.

The definition of value governing an engagement, such as fair market value, fair value, or investment value, which determines the assumptions and methods applied.

A value standard, defined differently for financial reporting and legal contexts, generally reflecting an exit price or the amount at which an asset could be exchanged.

The value of a business or asset to a particular investor, reflecting that investor's specific synergies, financing, tax position, and expectations rather than a hypothetical market participant.

A reduction in value applied to a noncontrolling ownership interest to reflect the lack of control over business decisions, distributions, and operations.

The additional amount a buyer would pay for a controlling interest, reflecting the ability to direct operations and realize synergies or improved cash flows.

A reduction applied to the value of an ownership interest because it cannot be readily sold in a public market, reflecting illiquidity and transaction costs.

A framework describing whether a valuation reflects a controlling or minority interest and whether it is marketable or nonmarketable, guiding which discounts or premiums apply.

Research comparing prices of privately placed restricted shares with publicly traded shares of the same issuer, used as evidence for quantifying marketability discounts.

An intangible asset representing the excess of purchase price over the fair value of identifiable net assets acquired, reflecting reputation, workforce, and expected synergies.

A nonphysical asset such as a patent, trademark, customer relationship, or software that has economic value and can be separately identified and valued.

An income approach to valuing intangibles that estimates the royalty the owner avoids paying by owning the asset, then discounts those avoided payments to present value.

The process of allocating the total consideration paid in an acquisition among identifiable tangible assets, intangible assets, liabilities, and goodwill.

The periodic assessment of whether the carrying amount of goodwill or another asset exceeds its recoverable or fair value, requiring a write-down if it does.

The value of a business as an operating enterprise with assembled assets, workforce, and customer base, as opposed to the sum of its assets in liquidation.

The amount realized if assets are sold individually, typically under forced or orderly conditions, with the business ceasing operations.

The total of a company's interest-bearing debt and equity capital, representing the capital base that generates enterprise-level operating cash flows.

The value of a company's operating business as a whole, equal to equity value plus debt and other claims, before deducting nonoperating assets.

The value of the owners' residual interest in a business, equal to enterprise value less debt and other senior claims plus nonoperating assets.

The additional value created when combining two businesses exceeds the value of each operating separately, often from cost savings, revenue gains, or shared capabilities.