Price, Value and Valuation Concept
Value
The concept of value has different definitions according to different economic considerations. According to neoclassical economic theories, the value of something is the price it will bring in an open and competitive market. Many neoclassical economic theories consider market price and value equal. According to classical economy, the value of something comes from the benefit of its use or consumption. In a nutshell, value is not the same as price.
In the most basic sense, value is the benefit that the user or consumer thinks of the product or service. There is no single and absolute value.
According to the generally accepted International Valuation Standards, the value is not a real data but the price that is likely to be finalized by the buyers or sellers of the goods or services.
Price
Price is the value at which a buyer and seller agree to buy or sell an object, where supply and demand intersect. Price is the amount requested, offered or paid for a good. With the purchase and sale transaction, the price becomes a historical fact. The seller wants to sell at a price higher than the value he appraised, and the buyer wants to buy at a price below his appraised value. Prices that occur in intensely traded and competitive markets are called “Market Value”. Market Value means that a service or asset changes hands at the valuation date without any coercion between a willing buyer and a willing seller independently of each other, following appropriate notification, and within the framework of an agreement in which the parties act in an informed, prudent and good faith manner, under conditions that are not affected by any relationship. is the estimated amount required.
Famous sayings about value and price
The price you pay is what you get value. (Warren Buffet, American entrepreneur / investor)
There is no absolute value in this world. You can only guess how valuable an object is to you. (Charles Dudley Warner, American writer)
Basic Concepts and Calculations for Company Valuation
Basic Accounting Concepts
Assets
Cash
Trade Receivables
Fixed Assets
Liabilities
Financial Liabilities
Trade Payables
Equity
Firm Value = Enterprise Value
Equity Value = Total Share Value
Net Financial Debt = Financial Debt — Cash and Cash Equivalents
Equity Value = Firm Value — Net Financial Debt
Share Value
• In the absence of shares with different privileges, the share value is obtained by dividing the company’s equity value by the number of shares.
• If there are preferred shares, the value between preferred shares and common shares is calculated according to the nature of the different privileges.
• The market value (equity value) of a public company is obtained by multiplying the share price (corresponding to the paid / issued capital) by the number of shares.
• 1 share = $ 1 nominal value share in stock exchange.
Goodwill
The value of intangible assets resulting from brand value, intellectual property rights, name and reputation, customer loyalty, location, products and similar factors that provide economic benefits (cash flow) in the future is called Goodwill.
