1. What is valuation?

Valuation is a quantitative process of determining the currnt or present worth of a company or

an asset. It can be not only on assets like investments in marketable securities, intangible assets
and fixed assets, but also, on liabilities such as bonds issued by a company. Valuation on the
other hand, helps the campany to identify the gaps and help toamage the assets. Also, it highly
subjective, but an easy way to estimate the current value of an asset.

2. What are the purppse of valuation?

The purpose of valuation is to trace the effectiveness of a strategic decisionaking process and to
provide the ability to track performance when it comes in estimating the change value of an
asset. Through this, it will help the company to understand the subtle dynamics of a company
and to forsee the insignificant decisions immediately. Moreover, in assessing tax and rent of a
property, the valuation is required becauae it helps the company to determine the value of a
property. Also, valuation helps to determine the long-run fundamental economic value of a
specific company's commong stock.

3. What are the general concepts in valuation?

Valuation is based on economic factors, industry variables and analysis of the financial
statements. The concept of valuation is going concern value where the worth of the company is
expressed in future profits, dividend or expected growth of a company. Next is marlet value,
this concept is reflected in bond or stock market's perception of a company. Lastly, intrinsic
value which is the price that justified, when the primary factorsbof value are considered.

4. How do we mesure a firm's value through analysis of financial statements?

Throug the analysis of financial statements, firm's valie can be measured. Since financial
statements has a data, it can be used to assess the performance of a firm. Also, it helps the
external and internal users to make a decision. By using financial statements, the firm can be
able to monitor the cash inflow and outflow. And in addition, assets, liabilities and equity can
be determined that will be a help for a company to compute its value or worth.

5. Define the following approachesvof valuation:

Discounted cash flow is a technique that ca be ised to estimate the investment based on
expected future cash flow. This cashflows are discounted into a current valie using a discount
rate. Furthermore, discount cash flow valuation allows the investors to make a decision in
terms of investing, acquiring a company and buying of stocks. Also, it is widely used investment
finance, patent valuation, real estate development and such.

Relative valuation also known as comparable valuation, is very effective tool to evaluate an
asset. It compares a company's value from its competitors to asses their financial worth. Also, it
use multiples, ratios, averages, and benchmarking to determine the valu of a company. In
addition, operating margin, price to cash flow for real estate, enterprise value, price-to-sale for
retail and price to free caah flow are the types of relative valuation.

Contingent claim valuation is a derivative instrument that pays off only certain contigencies and
providr a right but not an oblogation to payoff. Additionally, continigent claim valuation can be
valued as a function of the following variable such as current value, variance, strike price, basic
models and time to expiration. The primary pupose of this is to understand how the valies of
optiom are determined.

Reference:

Chen, J., (2020, June 1), "Valuation Definition",

https://www.investopedia.com/terms/v/valuation.asp

BrainKart.com, "Six Important Purposes of Valuation",

https://www.topaccountingdegrees.org/faq/what-is-valuation-in-accounting/

McCabe, C., (2018, April 22), "The importance of valuation",

https://www.google.com/amp/s/blog.truelytics.com/the-importance-of-valuations
%3fhs_amp=true

BBA Lectures, "Valuation Concepts - 5 Most Important Valuation Concepts",

https://www.google.com/amp/s/www.bbalectures.com/valuation-concepts/amp/

CFA Institution, (2021), "Valuation of Contigent Claims",

https://www.cfainstitute.org/en/membership/professional-development/refresher-
readings/valuation-contingent-claims