Valuation Glossary

Valuation ratio is a simple way to assess the value of an investment or company. It compares important financial numbers to give an idea of how valuable an asset is. Some common valuation ratios include the price-to-earnings ratio (P/E), price-to-sales ratio (P/S), price-to-book ratio (P/B), enterprise value-to-EBITDA ratio (EV/EBITDA), and dividend yield. These ratios help investors and analysts make informed decisions by comparing the financial numbers of different investments or companies. However, it's important to consider other factors and do a thorough analysis before making investment decisions based solely on these ratios.

Valuation procedure is the step-by-step process used to determine the value of an asset or business. It involves gathering information, selecting the appropriate valuation method, analyzing data, applying valuation models, assessing risk, determining the final value, and documenting the process. The goal is to arrive at a fair and reliable value based on the specific characteristics and circumstances of the asset or business being valued.

Valuation method refers to the approach used to determine the value of something. There are different methods available, such as the market approach, income approach, and asset approach.


The market approach compares the item being valued to similar items that have been recently bought or sold in the market.


The income approach estimates the value based on the item's potential to generate future income, considering factors like projected earnings.


The asset approach calculates the value based on the item's underlying assets, such as property and equipment.


The choice of valuation method depends on the type of item being valued and the purpose of the valuation. Different methods may be used together to get a more accurate valuation.

Valuation date is the specific date on which the value of something is determined. It's the date at which the assessment is made to determine the financial worth of an asset, investment, or business. The valuation date is important because the value of things can change over time, so it ensures that the valuation is based on the most current information available.

Valuation approach refers to the method used to determine the value of something. There are three common approaches:


Market Approach: It compares the item being valued to similar items that have recently been bought or sold in the market.


Income Approach: It estimates the value based on the item's potential to generate future income, considering factors like projected cash flows and discount rates.


Asset Approach: It calculates the value based on the item's underlying assets, such as property, equipment, and liabilities.


The chosen approach depends on factors like the type of item being valued and the purpose of the valuation. Sometimes a combination of approaches is used for a more accurate valuation.