Define: Valuation

Business, Legal & Accounting Glossary

Definition: Valuation



What is the dictionary definition of Valuation?

Dictionary Definition


  1. An estimation of something’s worth.
  2. finance The process of estimating the market value of a financial asset or liability.
  3. logic, propositional logic, model theory An assignment of truth values to propositional variables, with a corresponding assignment of truth values to all propositional formulas with those variables (obtained through the recursive application of truth-valued functions corresponding to the logical connectives making up those formulas).

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Full Definition of Valuation


Valuation is the attempt to determine whether a stock is fairly priced. According to financial theory, a stock should be valued at the future cash flows it will generate, discounted by an appropriate rate. But both future cash flows and an appropriate discount rate are highly uncertain, and thus investors seek additional valuation methods. The most common valuation method is the price-earnings ratio (P/E), which is the price divided by earnings per share (EPS). But this valuation can miss the mark because of accounting vagaries and the time-span chosen for EPS. Moreover, an earnings-based valuation won’t work for a new company with loads of promise but no profits as yet. Other recognized valuation methods are similarly useful and similarly flawed. A valuation based on sales recognizes the firm’s revenue-generating power — but bankrupt firms too often have plenty of revenue. A valuation based on book value uses audited accounting figures, but historical asset values are often wrong. Thus investors tend to use a variety of valuation methods to decide whether the current stock price over- or undervalues a stock.


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https://payrollheaven.com/define/valuation/
Modern Language Association (MLA):
Valuation. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. April 05, 2020 https://payrollheaven.com/define/valuation/.
Chicago Manual of Style (CMS):
Valuation. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/valuation/ (accessed: April 05, 2020).
American Psychological Association (APA):
Valuation. PayrollHeaven.com. Retrieved April 05, 2020, from PayrollHeaven.com website: https://payrollheaven.com/define/valuation/

Definition Sources


Definitions for Valuation are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 9th February, 2020