Valuation Glossary

The asset approach, also called the asset-based approach, is a method used to determine the value of a company by considering its assets and liabilities. It focuses on the value of tangible and intangible assets owned by the company, like buildings, equipment, inventory, and patents. The approach subtracts the company's liabilities from the value of its assets to calculate the net asset value. This method is useful when valuing companies with significant assets or when the company's earnings are unstable. There are two methods within the asset approach: the going concern method, which assumes the company will continue operating, and the liquidation method, which assumes the company will be sold off. The asset approach provides a conservative estimate of a company's value but may not fully capture the value of intangible assets.

Arbitrage Pricing Theory (APT) is a financial model that helps determine the expected return of an investment based on different factors that affect its risk. It takes into account multiple factors, like interest rates and inflation, instead of just the overall market risk. The theory assumes that investors will adjust prices to ensure fair value. Essentially, APT provides a way to analyze and price investments by considering various factors that can impact their returns.

An appraisal procedure is a structured process used to determine the value of a property, asset, or business. It involves collecting information, analyzing it, and using valuation methods to estimate the value. The steps include defining the purpose, gathering data, applying valuation methods, making adjustments, and reporting the findings. Qualified appraisers use this procedure to determine the fair market value of assets.

An appraisal method is a structured approach used to determine the value of something, such as a property or business. It involves using specific techniques to estimate its worth. Common methods include comparing it to similar items in the market, considering its income generation potential, assessing the cost to replace it, or evaluating its assets and liabilities. Appraisers choose the method that best suits the situation to determine the value accurately.

The appraisal date is the specific date when an appraisal is done to determine the value of an asset. It takes into account the current conditions and circumstances that may affect its worth.