A market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis

See firm-specific risk for the definition of Alpha.

The Capital Asset Pricing (CAPM) Model is the most widely used risk/return model used to calculate the equity cost of capital.

(1) The process of establishing the value of an asset or liability; OR (2) The amount representing an opinion or estimate of value

A multivariate model for estimating the cost of equity capital, which incorporates several systematic risk factors.

A method of indicating the value of a business, business or business interest based on a summation of the net value of the individual assets and liabilities. Since each of the assets and liabilities will have been valued using either the market, income or cost approaches, it is not a distinct valuation approach.

A statement of the fundamental measurement assumptions of a valuation.

A measure of systemic risk of a stock; the tendency of a stock’s price to correlate with changes in a specific index.

An amount or percentage that would be deducted by market participants from the current market price of a publicly traded stock to reflect the decrease in the value per share of a block of stock that is of a size that could not be sold in a reasonable period of time given normal trading volumes.

The amount at which an asset is recognised in the financial statements of an entity after deducting any accumulated depreciation and any accumulated impairment losses.

A commercial, industrial, service, or investment entity (or a combination thereof) pursuing an economic activity.

The degree of uncertainty of realising expected future returns of the business resulting from factors other than financial leverage.

The amount at which an asset is recognised in the balance sheet after deducting accumulated depreciation and accumulated impairment losses

Cash that is generated over a period of time by an asset, group of assets, or business enterprise. Usually used with a qualifying word or phrase.

Comps or Comparable Company Analysis involves identifying valuation multiples from comparable listed companies and applying these to the financials of the company to be valued.

The ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings.

See Comparable Company Analysis.

A charge to reflect a fair return on or return of Contributory Assets used in the generation of the cash flows associated with the intangible asset being valued.

Any tangible or intangible assets used in the generation of the cash flows associated with the intangible asset being valued.

An amount or a percentage by which the pro rata value of a controlling interest exceeds the pro rata value of a non-controlling interest in a business enterprise, to reflect the power of control.

A valuation approach based on the economic principle that a buyer will pay no more for an asset than the cost to obtain an asset of equal utility, whether by purchase or by construction.

The expected rate of return that the market requires in order to attract funds to a particular investment.

A statistical measure of the variance of two random variables that are observed or measured in the same mean time period.

The risk that one party to a contract will cause a financial loss for the other by failing to discharge an obligation.

Cash and assets that are reasonably expected to be converted into cash within one year in the normal course of business.

Debts or obligations that are due within one year.

Raising money for a business through loans or by issuing bonds.

The likelihood of a counterparty not honouring its obligations.

An amount or percentage deducted from a pro-rata share of the value of 100 percent of an equity interest in a business, to reflect the absence of some or all of the powers of control.

The discount rate is the percentage rate required to calculate the present value of a future cash flow.

Discounted Cash Flow (DCF) valuation is a method of valuing a company using the concept of the time value of money. All future cash flows are estimated and discounted to give their present values. The sum of all future cash flows, both incoming and outgoing, is the net present value (NPV), which is taken as the value or price of the cash flows in question.

The process of determining the present value of a payment or a stream of payments that is to be received

See firm-specific risk.

A share of a company’s net profits distributed by the company to a class of its shareholders.

Earnings Before Interest and Tax. Sometimes referred to as operating profit.

Earnings Before Interest, Taxation, Depreciation, and Amortization.

The total period of time over which an asset is expected to generate economic benefits for one or more users.

A loss of utility caused by factors external to the asset, especially factors related to changes in supply or demand for products produced by the asset, that results in a loss of value.

Enterprise Value (EV), also known as Total Enterprise Value (TEV), Entity Value, or Firm Value (FV) is a measure reflecting the market value of a whole business. It is the sum of claims of all the security-holders: debt holders, preferred shareholders, minority interest, common equity holders, and others.

A ratio used to determine the value of a company. The enterprise value multiple looks at a company as a potential acquirer would, because it takes debt into account – an item which other multiples like the P/E ratio do not include. An example of an enterprise value multiple is EV/EBITDA.

Factors that are specific to an entity and not available to market participants generally.

See Enterprise Value.

Total assets less total liabilities. Also called total shareholders’ equity or net worth.

Total assets less total liabilities. Also called total shareholders’ equity or net worth.

The money acquired from the business owners themselves or from other investors.

Any contract that creates a residual interest in the assets of an entity after deducting all of its liabilities.

A ratio used to determine the value of a company’s equity. An example of an equity multiple is price to earnings.

See risk premium for the definition of Equity Risk Premium.

The value of a business to all of its shareholders

The EV to EBIT multiple is defined as the enterprise value divided by earnings before interest and tax.

The EV to EBITDA multiple is defined as the enterprise value divided by earnings before interest, tax, depreciation, and amortization.

The EV to sales multiple is defined as the enterprise value divided by sales (also called revenue or turnover).

That amount of anticipated economic benefits that exceeds an appropriate rate of return on the value of a selected asset base (often net tangible assets) used to generate those anticipated economic benefits.

The price that would be received to sell an asset or paid to transfer a liability

The discounted payments and unrealised losses an entity expects to pay to a counterparty.

The discounted receipts and unrealised gains an entity forecasts will be recieved from a counterparty

A loss of utility caused by economic or locational factors external to the asset that results in a loss of value.

market value declines; negative changes in technology, markets, economy, or laws; increases in market interest rates; net assets of the company higher than market capitalisation

A valuer who is not employed by the owner or manager of an asset.

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date

An opinion on whether the financial terms of a proposed corporate transaction are fair to the equity holders of an entity involved.

A contract that creates rights or obligations between specified parties to receive or pay cash or other financial consideration, or an equity instrument.

Any recognised or adopted standards for the preparation of periodic statements of an entity’s financial position. These may also be referred to as accounting standards.

The degree of uncertainty of realizing expected future returns of the business resulting from financial leverage.

A periodic statement of an entity’s financial position

See Enterprise Value.

Firm-specific risk is sometimes called unsystematic risk, specific risk, diversifiable risk or alpha. The category includes risks associated with a firm’s management team, operations, projects, products, profits, and so on.

Free Cash Flows to Equity is the cash flow available for distribution to equity holders. If net borrowings remain unchanged, the formula is free cash flows to the firm – Interest Expense x (1 – Tax Rate).

This is the cash flow available for distribution among all the securities holders of an organization (i.e. debt holders, equity holders, etc.). The standard definition is EBIT x (1 – Tax Rate) + Depreciation & Amortization +/- Changes in Working Capital – Capital Expenditure. The can also be referred to as unlevered free cash flow.

A loss of utility resulting from inefficiencies in the subject asset compared to its replacement that results in a loss of value.

A business enterprise that is expected to continue operations for the foreseeable future.

Any future economic benefit arising from a business, an interest in a business or from the use of a group of assets which is not separable.

All interest-bearing debt (both current and long-term).

The use of a non-financial asset by market participants that would maximise the value of the asset or the group of assets and liabilities (e.g. a business) within which the asset would be used

The amount by which the carrying amount of an asset or cash-generating unit exceeds its recoverable amount

A valuation approach that provides an indication of value by converting future cash flows to a single current capital value.

The initial income from an investment divided by the price paid for the investment expressed as a percentage.

A non-monetary asset that manifests itself by its economic properties. It does not have physical substance but grants rights and economic benefits to its owner.

The discount rate at which the present value of the future cash flows of the investment equals the acquisition cost of the investment.

obsolescence or physical damage; asset is idle, part of a restructuring or held for disposal; worse economic performance than expected; for investments in subsidiaries, joint ventures or associates, the carrying amount is higher than the carrying amount of the investee's assets, or a dividend exceeds the total comprehensive income of the investee

The sum of equity and debt in a business enterprise. Debt can be either (a) all interest-bearing debt or (b) long-term, interest-bearing debt. When the term is used, it should be supplemented by the appropriate qualifying words.

Property that is land or a building, or part of a building, or both, held by the owner to earn rentals or for capital appreciation, or both, rather than for: 1. use in the production or supply of goods or services or for administrative purposes, or 2. sale in the ordinary course of business.

The value of an asset to the owner or a prospective owner for individual investment or operational objectives.

The beta reflecting a capital structure that includes debt.

The net amount that would be realized if a business is discounted and its assets are sold individually. The appropriate bases of value and any appropriate additional qualifying assumptions should also be stated.

The percentage amount that a party expects to lose if the counterparty defaults

Market Capitalization is the share prices times the number of shares outstanding for a publicly traded company.

The whole body of individuals, companies or other entities that are involved in actual transactions or who are contemplating entering into a transaction for a particular type of asset.

The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion

Market Risk is often referred to as systematic risk, non-specific risk, non-diversifiable risk or beta. This category includes risks such as interest rates, the economic cycle, inflation, legislation and socio-economic developments.

The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.

An asset which provides similar function and equivalent utility to the asset being valued, but which is of a current design and constructed or made using current materials and techniques.

The market that maximises the amount that would be received to sell the asset or minimises the amount that would be paid to transfer the liability, after taking into account transaction costs and transport costs

The Multiples Valuation Approach is a valuation theory based on the idea that similar assets sell at similar prices. It assumes that a ratio comparing value to some firm-specific variable (operating margins, cash flow, etc.) is the same across similar firms.

Net debt is all interest bearing debt (often referred to as gross debt) less cash, cash equivalents and marketable securities. Net debt assumes that cash and marketable securities are “surplus” or “redundant” and can be used to pay down debt. In practice, It is important to assess whether all cash, cash equivalents, and marketable securities truly are “redundant” or readily disposable.

Net Operating Profit After Tax (NOPAT) is a company’s after-tax operating profit for all investors, including shareholders and debt holders.

Net Present Value is the sum of the present values of a time series of future cash flows.

Cash flows expressed in monetary terms in a given period or series or periods.

Assets that are held long term and intended for use by an enterprise in the production of goods or the delivery of services.

See market risk.

Classes of assets that are not essential to the operations of a business, but may still generate income or provide return on investment.

See market risk.

Earnings adjusted for non-recurring items, over/under depreciation, profit/loss on sale of assets, etc. so that earnings reflect the ongoing performance of the company.

A loss of utility of an asset caused by either physical deterioration, changes in technology, patterns of demand or environmental changes that results in a loss of value.

A loss of utility due to the physical deterioration of the asset or its components resulting from its age and normal usage that results in a loss of value.

A class of tangible asset that is: 1.held by an entity for use in the production or supply of goods or services, for rental by others or for administrative purposes AND 2.expected to be used over a period of time.

An assemblage of various assets or liabilities held or managed by a single entity.

Precedents or Precedent Transaction Analysis involves identifying recent acquisitions in the same sector and applying the multiples from these transactions to the financials of the company to be valued.

The value, as of a specified date, of a future payment or series of future payments discounted to the specified date (or to time period zero) at an appropriate discount rate.

The price to book multiple is defined as the market capitalization (or equity value of common shares) divided by the book value of equity which is total common shareholders’ equity excluding preference shares and minority interest.

The Price to Earnings Multiple is defined as the market capitalization (or equity value of common shares) divided by the earnings belonging to common shareholders.

The market with the greatest volume and level of activity for the asset or liability

Forecast financial data used to estimate cash flows in a discounted cash flow model.

An amount of income (loss) and/or change in value realised or anticipated on an investment, expressed as a percentage of that investment.

Nominal cash flows adjusted to exclude the effect of price changes over time.

An impairment loss is recognised whenever recoverable amount is below carrying amount.

The higher of an asset's fair value less costs of disposal* (sometimes called net selling price) and its value in use)

The current cost of a similar asset offering equivalent utility.

Same approach as for the identification of impaired assets: assess at each balance sheet date whether there is an indication that an impairment loss may have decreased. If so, calculate recoverable amount.

Risk Premium is the excess return that the overall stock market provides over the risk-free rate.

Most analysts use the yield on government bonds to determine the risk-free rate even though they are not entirely risk-free. This is because it is virtually impossible to get a truly risk free rate.

A payment made for the use of an asset, especially an intangible asset or a natural resource.

An assumption that either assumes facts that differ from the actual facts existing at the valuation date or that would not be made by a typical market participant in a transaction on the valuation date.

A particular buyer for whom a particular asset has special value because of advantages arising from its ownership that would not be available to other buyers in a market.

An amount that reflects particular attributes of an asset that are only of value to a special purchaser.

See firm-specific risk.

A measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is calculated as the square root of variance.

An additional element of value created by the combination of two or more interests where the value of the combined interest is worth more than the sum of the original interests.

See market risk.

Tax relief available on amortisation of the capitalised asset.

The value at the end of an explicit forecast period of all remaining projected cash flows.

See firm-specific risk.

One of three principal ways of estimating value. Each valuation approach includes different methods that may be used to apply the principles of the approach to specific asset types or situations.

The date on which the opinion of value applies. The valuation date shall also include the time at which it applies if the value of the type of asset can change materially in the course of a single day.

Data and other information that is used in a valuation method. Inputs may be actual or estimated.

A specific technique or model used to estimate value. All valuation methods fall within a valuation approach.

A report that communicates a valuation opinion and relevant associated matters to its intended recipient.

The act or process of considering and reporting on a valuation undertaken by another party, which may or may not require the reviewer to provide their own valuation opinion.

The maximum loss that could be expected to be incurred over a nominated time period as a result of movements in identified risk parameters, within a specified level of probability based on statistical analysis of historical price trends and volatilities.

The present value of the future cash flows expected to be derived from an asset or cash-generating unit.

Variance is a measure of the dispersion of a set of data points around their mean value. Variance is a mathematical expectation of the average squared deviations from the mean.

Assets which in real terms will generally depreciate in value over time.

The Weighted Average Cost of Capital (WACC) incorporates the individual costs of capital for each provider of finance (e.g. debt and equity), weighted by the relative size of their contribution to the overall pool of finance.

The amount by which current assets exceed current liabilities.

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   French: Rendement
   Spanish: Rendimiento
   German: Rendite
   Portuguese: Rendimento
2. The return on an investment. Usually expressed annually as a percentage based on an investment’s cost, its current market value or its face (par) value. Often used with a qualifying word or phrase.

The annual rate of return anticipated on a bond if it is held until the maturity date taking into account the current market price, the par value, coupon interest rate and the time to maturity.