What is valuation? How would you apply valuation methods? Why is valuation an important tool in risk management? Explain.
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What is valuation?
The process of estimating a potential market value of an asset.
"The premise of valuation is that we can make reasonable estimates of value for most assets, and that the same fundamental principles determine the values of all types of assets, real as well as financial. Some assets are easier to value than others, the details of valuation vary from asset to asset, and the uncertainty associated with value estimates is different for different assets, but the core principles remain the same. This introduction lays out some general insights about the valuation process and outlines the role that valuation plays in portfolio management, acquisition analysis and in corporate finance. It also examines the three basic approaches that can be used to value an asset."
This solution provides a detailed explanation of valuation, how to apply valuation methods, and why valuation is an important tool in risk management.