Valuation

Asset valuation

Valuation of financial assets is done using one or more of these types of models:

1. Relative value models determine the value based on the market prices of similar assets.

2. Absolute value models determine the value by estimating the expected future earnings from owning the asset discounted to their present value.

3. Option pricing models are used for certain types of financial assets (e.g., warrants, put options, call options, employee stock options, investments with embedded options such as a callable bond) and are a complex present value model. The most common option pricing models are the Black-Scholes-Merton models and lattice models.

Common terms for the value of an asset or liability are fair market value, fair value, and intrinsic value. The meanings of these terms differ. The most common term is fair market value defined as the cash price an item would sell for between a willing buyer and willing seller assuming they both have knowledge of the relevant facts and they have no compulsion to buy or sell.

Fair value is used in different contexts and has multiple meanings. Some people use the term to mean the same thing as fair market value. Fair value is also a term used in accounting and law. It is used in generally accepted accounting principles (GAAP) for financial reporting and in law in shareholder rights legal statutes. In these cases, fair value is defined in the accounting literature or the law, respectively. Fair value may be different from fair market value in the accounting and legal contexts. Intrinsic value is an asset's true value regardless of the market price.

When an analyst determines a stock's intrinsic value is greater than its market price, the analyst issues a "buy" recommendation and vice versa. The determination of intrinsic value may be subject to personal opinion and vary among individual analysts.

Valuation of mining projects

In mining, valuation is the process of determining the value or worth of a mining property.

Mining valuations are sometimes required for IPO's, fairness opinions, litigation, mergers & acquisitions and shareholder related matters.

In valuation of a mining project or mining property, fair market value is the standard of value to be used. The CIMVal Standards are a recognised standard for valuation of mining projects and is also recognised by the Toronto Stock Exchange (Venture). The standards spearheaded by Spence & Roscoe, stress the use of the cost approach, market approach and the income approach, depending on the stage of development of the mining property or project.

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