Introduction to Valuation

This chapter introduces the important concepts of value, bases of value, and the valuation approaches as detailed in the International Valuation Standards (IVS) of the International Valuation Standards Committee (IVSC) (2019). These concepts are the cornerstones of asset valuation. Assets can be property, plant and equipment, intangibles, firms (or companies and corporations), and securities such as bonds, debentures, preference shares, and ordinary shares. An asset is any resource that generates future economic benefits. In finance and economics, these future economic benefits are in the form of future cash flows. To determine the asset’s present value, these future cash flows are discounted at the investors’ required rate of return. This valuation approach is called the income valuation approach and is widely used in valuation. Other valuation approaches include asset-based, cost and market, or relative valuation approaches. The chapter also discusses the firm growth stages and how these influence the valuation approach adopted. The chapter concludes with a discussion of the 10-step asset valuation process.