VALUATION APPLIED TO COMPANIES
Appraisal in finance means to calculate the just price of an asset (or a financial document representing that asset) whose produce profit.
In finance the key word is VALUATION, and its a part of the study of Corporate Finance.
To avoid any misunderstanding, “valuation” means identifying the fair price or intrinsical price of a company, a project or the modification of an existing company.
Let us take a look at valuation as applied to companies.
In valuating a company we calculate the Expected Intrinsical Price which represents the value that can be negotiated.
We have added “Expected” because to calculate its price we need to PROJECT its Cash Flow which is the equivalent of the company´s “fire power”. Therefore, adding the Present Value of this cash flow discounted at a just rate to obtain the desirous Expected Intrinsical Price.
To calculate this Cash Flow is the most difficult and most important part of the valuation.
Please read the papers “
Why to valuate?” and “Don´t negotiate before appraising”.