Rationale

Business owners spend brimming effort in making well - defined

objectives which is based on the fact that capital is scarce. This actuality

encourages the businesses to maximize returns, thereby recognizing the

concept of maximizing the business’ value. However, it will be difficult to

achieve if a certain company does not know how and where to begin. Well,

this is when valuation should take place.

Understanding the firm first through its true value by disclosing financial

information and risk profile is significant to the investors since it potentially

affects their investment decisions which is rooted on the business ability to

maximize its value considering the proper employment of resources.The

concept of value has been explained by Alfred Marshall that the company can

create value if and only the return on the firm’s invested capital exceeds the

cost of capital. While the firm undertakes valuation to determine the value of

assets and the application of budgeting forecasting analysis, the investors are

eager to know the results of such exercise for making decisions based on the

prevision of the present value of the future investment and the longevity of

providing returns. With valuation activity of the firm, the investors can

accumulate and increase wealth by making it into the right decisions. Hence,

if the company maximizes its value, it does not only benefit the capital

providers or investors but it has a domino impact to the economy wherein

there is a great manifestation of growth in employment and higher economic

output and gains.

 Therefore, businesses should consider valuation as a bedrock behind

these positive impacts toward the investors and to the whole economy. As

valuation facilitates exchanges in an open market, conflicts can be avoided or

mitigated but still in the light of uncertainty that is consistently present in all

valuation exercises.