Adjusted Book Value Method

The book value that results after one or more asset or liability amounts are added, deleted or changed from the respective book amounts.

Asset Approach

A general way of determining a value indication of a business, business ownership interest, or security using one or more methods based on the value of the assets net of liabilities.

Beta

A measure of systematic risk of a stock or the tendency of a stock's price to correlate with changes in the market.

Blockage Discount

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

Business Enterprise

A commercial, industrial, service, or investment entity pursuing an economic activity.

Business Valuation

The act or process of determining the value of a business enterprise or ownership interest therein.

Capital Asset Pricing Model (CAPM)

A model in which the cost of capital for any stock or portfolio of stocks equals a risk-free rate plus a risk premium that is proportionate to the systematic risk of the stock or portfolio.

Capital Structure

The composition of a business entity's invested capital.

Capitalization

The conversion of income into value.

Capitalization Factor

Any multiple or divisor used to convert anticipated economic benefits of a single period into value.

Capitalization of Income Method

An income based method whereby economic benefits for a representative single period are converted to value through division by a capitalization rate.

Capitalization Rate

Any divisor (usually expressed as a percentage) used to convert anticipated economic benefits of a single period into value.

Cash Flow

Cash that is generated over a period of time by an asset, group of assets, or business enterprise.

Control

The power to direct the management and policies of a business.

Control Premium

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

Cost Approach

A general way of determining a value indication of an individual asset by quantifying the amount of money required to replace the future service capability of that asset.

Cost of Capital

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

Discount for Lack of Control

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

Discount for Lack of Marketability

An amount or percentage deducted from the value of an ownership interest to reflect the relative absence of marketability.

Discount Rate

A rate of return used to convert a future monetary sum into present value.

Discounted Cash Flow Method

An income-based method within the income approach whereby the present value of future expected net cash flows is calculated using a discount rate.

Equity

The owner's interest in property after deduction of all liabilities.

Equity Risk Premium

A rate of return added to a risk-free rate to reflect the additional risk of equity instruments over risk free instruments.

Excess Earnings Method

A specific way of determining a value indication of a business, ownership interest, or security determined as the sum of a) the value of the assets derived by capitalizing excess earnings and b) the value of the selected asset base.

Fair Market Value

The price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arms length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts.

Fairness Opinion

An opinion as to whether or not the consideration in a transaction is fair from a financial point of view.

Forced Liquidation Value

Liquidation value, at which the asset or assets are sold as quickly as possible, such as at an auction.

Going Concern Value

The value of a business enterprise that is expected to continue to operate into the future. The intangible elements of Going Concern Value result from factors such as having a trained work force and the necessary licenses, systems, and procedures in place.

Goodwill

That intangible asset arising as a result of name, reputation, customer loyalty, location, and similar factors not separately identified.

Guideline Public Company Method

A method within the market approach whereby market multiples are derived from market prices of stocks of companies that are engaged in the same or similar lines of business, and that are actively traded on a free and open market.

Income Approach

A general way of determining a value indication of a business, business ownership interest, security, or intangible asset using one or more methods that convert anticipated economic benefits into a present single amount.

Intangible Assets

Non-physical assets such as franchises, trademarks, patents, copyrights, goodwill and contracts (as distinguished from physical assets) that grant rights and privileges, and have value for the owner.

Internal Rate of Return

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

Invested Capital

The sum of equity and debt in a business enterprise. Debt is typically a) all interest bearing debt or b) long-term interest-bearing debt.

Invested Capital Net Cash Flows

Those cash flows available to pay out to equity holders (in the form of dividends) and debt investors (in the form of principal and interest) after funding operations of the business enterprise and making necessary capital investments.

Investment Value

The value to a particular investor based on individual investment requirements and expectations.

Key Person Discount

An amount or percentage deducted from the value of an ownership interest to reflect the reduction in value resulting from the actual or potential loss of a key person in a business enterprise.

Levered Beta

The beta reflecting a capital structure that includes debt.

Liquidation Value

The net amount that would be realized if the business is terminated and the assets are sold piecemeal. Liquidation can be either "orderly" or "forced.

Liquidity

The ability to quickly convert property to cash or pay a liability.

Majority Control

The degree of control provided by a majority position.

Majority Interest

An ownership interest greater than 50% of the voting interest in a business enterprise.

Market Approach

A general way of determining a value indication of a business, business ownership interest, security, or intangible asset by using one or more methods that compare the subject to similar businesses or ownership interests that have been sold.

Market Capitalization of Equity

The share price of a publicly traded stock multiplied by the number of shares outstanding.

Market Multiple

The market value of a company's stock or invested capital divided by a company measure (such as economic benefits, number of customers).

Marketability

The ability to quickly convert property to cash at minimal cost.

Merger and Acquisition Method

A method within the market approach whereby pricing multiples are derived from transactions of significant interests in companies engaged in the same or similar lines of business.

Minority Discount

A discount for lack of control applicable to a minority interest.

Minority Interest

An ownership interest less than 50% of the voting interest in a business enterprise. 

Multiple

The inverse of the capitalization rate.

Net Book Value

With respect to a business enterprise, the difference between total assets (net of accumulated depreciation, depletion, and amortization) and total liabilities as they appear on the balance sheet (synonymous with Shareholder's Equity).

Net Present Value

The value, as of a specified date, of future cash inflows less all cash outflows (including the cost of investment) calculated using an appropriate discount rate.

Net Tangible Asset Value

The value of the business enterprise's tangible assets (excluding excess assets and non-operating assets) minus the value of its liabilities.

Non-Operating Assets

Assets not necessary to ongoing operations of the business enterprise.

Normalized Earnings

Economic benefits adjusted for nonrecurring, non-economic, or other unusual items to eliminate anomalies and/or facilitate comparisons.

Normalized Financial Statements

Financial statements adjusted for non-operating assets and liabilities and/or for nonrecurring, non-economic, or other unusual items to eliminate anomalies and/or facilitate comparisons.

Orderly Liquidation Value

Liquidation value at which the asset or assets are sold over a reasonable period of time to maximize proceeds received.

Premise of Value

An assumption regarding the most likely set of transactional circumstances that may be applicable to the subject valuation; e.g. going concern, liquidation.

Present Value

The value, as of a specified date, of future economic benefits and/or proceeds from sale, calculated using an appropriate discount rate.

Price/Earnings Multiple

The price of a share of stock divided by its earnings per share.

Rate of Return

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

Replacement Cost New

The current cost of a similar new property having the nearest equivalent utility to the property being valued.

Report Date

The date conclusions are transmitted to the client.

Reproduction Cost New

The current cost of an identical new property.

Required Rate of Return

The minimum rate of return acceptable by investors before they will commit money to an investment at a given level of risk.

Residual Value

The value as of the end of the discrete projection period in a discounted future earnings model.

Return on Equity

The amount, expressed as a percentage, earned on a company's common equity for a given period.

Return on Invested Capital

The amount, expressed as a percentage, earned on a company's total capital for a given period.

Risk Premium

A rate of return added to a risk-free rate to reflect risk.

Risk-Free Rate

The rate of return available in the market on an investment free of default risk.

Rule of Thumb

A mathematical formula developed from the relationship between price and certain variables based on experience, observation, hearsay, or a combination of these; usually industry specific.

Standard of Value

The identification of the type of value being utilized in a specific engagement; e.g. fair market value, fair value, investment value.

Systematic Risk

The risk that is common to all risky securities and cannot be eliminated through diversification. The measure of systematic risk in stocks is the beta coefficient.

Tangible Assets

Physical assets (such as cash, accounts receivable, inventory, property, plant and equipment, etc.).

Unlevered Beta

The beta reflecting a capital structure without debt.

Unsystematic Risk

The portion of total risk specific to an individual security that can be avoided through diversification.

Valuation

The act or process of determining the value of a business, business ownership interest, security, or intangible asset.

Valuation Approach

A general way of determining a value indication of a business, business ownership interest, security, or intangible asset using one or more valuation methods.

Valuation Date

The specific point in time as of which the valuator's conclusion of value applies (also referred to as "Appraisal Date").

Valuation Ratio

A fraction in which a value or price serves as the numerator and financial, operating, or physical data serve as the denominator.

Voting Control

De jure control of a business enterprise.

Weighted Average Cost of Capital (WACC)

The cost of capital (discount rate) determined by the weighted average, at market value, of the cost of all financing sources in the business enterprise's capital structure.