# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

What is Valuation?

Valuation is determining a stock, bond, or other asset’s worth. For instance, stock analysts aim to know an entire company’s worth, which they attempt to do by evaluating different metrics, including earnings growth and the business’ cash flows.

Valuation has two main forms. The first is absolute valuation, where an analyst estimates a business’ inherent worth. This can help analysts determine whether a stock‘s current market price is above or below its inherent value. Because analysts have varying opinions and use different valuation techniques, it’s a subjective figure.

The second is relative valuation. It helps compare businesses on standard valuation metrics. Price to earnings, for instance, shows how many dollars you pay for a business to make a dollar in earnings for a given period. This helps you figure out which business is the cheapest as measured by a given metric, like earnings, which can be especially relevant for companies in similar industries. The most relevant valuation metrics for comparison vary by market segment and industry.  

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