Asset Approach – a general way of determining a value 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; the tendency of a stock’s price to correlate with changes in a specific index. 

Book Value – see Net Book Value. 

Business – a commercial, industrial, service, or investment entity (or a combination thereof) pursuing an economic activity. 

Business Risk – the degree of uncertainty of realising expected future returns of the business resulting from factors other than financial leverage. See Financial Risk. 

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 the invested capital of a business enterprise, the mix of debt and equity financing. 

Capitalisation – a conversion of a single period of economic benefits into value. 

Capitalisation Factor – any multiple or divisor used to convert anticipated economic benefits of a single period into value. 

Capitalisation of Maintainable Earnings Method – a method within the income approach whereby economic benefits for a representative single period are converted to value through division by a capitalisation rate. 

Capitalisation 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. It may be used in a general sense to encompass various levels of specifically defined cash flows. When the term is used, it should be supplemented by a qualifier (for example, “discretionary” or “operating”) and a specific definition in the given valuation context. 

Common Size Financial Statements – financial statements in which each line is expressed as a percentage of the total. On the balance sheet, each line item is shown as a percentage of total assets, and on the income statement, each item is expressed as a percentage of sales. 

Control – the power to direct the management and policies of a business enterprise. 

Control Premium – an amount or a percentage by which the pro rata value of a controlling interest exceeds the pro rata value of a 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 Rate – a rate of return used to convert a future monetary sum into present value. 

Discounted Cash Flow Method – a method within the income approach whereby the present value of future expected net cash flows is calculated using a discount rate. 

Economic Benefits – inflows such as revenues, net income, net cash flows, etc.

Equity Net Cash Flows – those cash flows available to pay out to equity holders (in the form of dividends) after funding operations of the business enterprise, making necessary capital investments, and increasing or decreasing debt financing. 

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 (a component of the cost of equity capital or equity discount rate). 

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 arm’s 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. 

Financial Risk – the degree of uncertainty of realising expected future returns of the business resulting from financial leverage. See Business Risk. 

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

Free Cash Flow – operating cash flow less expected capital expenditure needs. 

Going Concern – an ongoing operating business enterprise. 

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, an operational plant, and the necessary licences, systems, and procedures in place. 

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

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, equities, mineral rights, securities 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. 

Intrinsic Value – the value that an investor considers, on the basis of an evaluation or available facts, to be the “true” or “real” value that will become the market value when other investors reach the same conclusion. When the term applies to options, it is the difference between the exercise price or strike price of an option and the market value of the underlying security. 

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. When the term is used, it should be supplemented by a specific definition in the given valuation context. 

Investment Risk – the degree of uncertainty as to the realisation of expected returns. 

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. 

Limited Scope Valuation – the act or process of determining the value of a business, business ownership interest, security, or intangible asset with limitations in analysis, procedures, or scope. 

Liquidation Value – the net amount that would be realised 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, business ownership interests, securities, or intangible assets that have been sold. 

Market Capitalisation 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. 

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

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 capitalisation rate. 

Net Book Value – with respect to a business enterprise, the difference between total assets (net of accumulated depreciation, depletion, and amortisation) and total liabilities as they appear on the balance sheet (synonymous with Shareholder’s Equity). With respect to a specific asset, the capitalised cost less accumulated amortisation or depreciation as it appears on the books of account of the business enterprise. 

Net Cash Flows – when the term is used, it should be supplemented by a qualifier. 

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. 

Normalised Earnings – economic benefits adjusted for non-recurring, non-economic, or other unusual items to eliminate anomalies and/or facilitate comparisons. 

Normalised 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 maximise proceeds received. 

Portfolio Discount – an amount or percentage deducted from the value of a business enterprise to reflect the fact that it owns dissimilar operations or assets that do not fit well together. 

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 realised or anticipated on an investment, expressed as a percentage of that investment. 

Report Date – the date conclusions are transmitted to the client. 

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. 

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. 

Return on Investment – see Return on Invested Capital and Return on Equity. 

Risk Free Rate – the rate of return available in the market on an investment free of default risk. 

Risk Premium – a rate of return added to a 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. 

Special Interest Purchasers – acquirers who believe they can enjoy post-acquisition economies of scale, synergies, or strategic advantages by combining the acquired business interest with their own. 

Standard of Value – the identification of the type of value being used in a specific engagement; e.g. fair market value, fair value, investment value. 

Surplus Assets – assets not necessary to ongoing operations of the business enterprise.

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.). 

Terminal Value – the value as of the end of the discrete projection period in a discounted future earnings model. 

Unlevered Beta – the beta reflecting a capital structure without debt. 

Unsystematic Risk – the 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 valuer’s opinion of value applies

Valuation Method – within approaches, a specific way to determine value. 

Value to the Owner – the value to a particular investor based on individual investment requirements and expectations. (NOTE: commonly used in Family Law matters). 

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