Valuation Glossary

Market Capitalization of Invested Capital refers to the total value of a company's equity and debt components in the market. It is calculated by adding the market value of the company's outstanding shares of stock to the market value of its outstanding debt. This metric provides an indication of the overall market perception of a company's value, taking into account both equity and debt holders' interests. It represents the amount of money investors are willing to pay for a company's ownership and debt claims in the open market.

Market capitalization of equity refers to the total value of a company's outstanding shares of common stock in the stock market. It is calculated by multiplying the current stock price by the total number of shares. Market cap helps to determine the size and value of a company. Higher market cap means a larger company, while lower market cap indicates a smaller company. It is an important metric used by investors to compare companies and make investment decisions.

The market (market-based) approach is a way to determine the value of an asset by looking at the prices of similar assets that have recently been sold. It assumes that the market price of similar assets reflects their fair value. The approach involves comparing the asset being valued to similar assets in terms of industry, size, location, and other relevant factors. By analyzing the selling prices of these comparable assets, a valuation expert can estimate the value of the subject asset. The market approach is based on the idea that the market knows best and provides a useful reference for valuing an asset. However, it has limitations, such as the availability of comparable data and the assumption that market prices always reflect true value.

A Management Buyout (MBO) is a transaction where a company's existing management team acquires a significant portion or all of the company's assets and operations. This type of buyout often occurs when the current owners want to exit the business, either due to retirement, divestment, or strategic reorganization.

A Management Buy-In (MBI) is a type of acquisition where an external management team buys a significant stake in a company and takes over its management. This new management team is typically composed of experienced professionals who believe they can improve the company's performance and value.