Valuing Assets in Financial Markets

8 Pages Posted: 21 Oct 2008

See all articles by Robert S. Harris

Robert S. Harris

University of Virginia - Darden School of Business

Robert M. Conroy

University of Virginia - Darden School of Business

Abstract

This technical note provides an overview of techniques used to value assets, including multiples, arbitrage pricing, and discounted cash flow. The note emphasizes the basic nature of valuation approaches and their logical underpinning, focusing on how techniques are applied to assets that are or might be traded in financial markets. The note sets the stage for specific (and often complicated) applications of the pricing techniques.

Excerpt

UVA-F-1518

Rev. May 10, 2011

Valuing Assets in Financial Markets

This note provides an overview of techniques used to value assets, including multiples, arbitrage pricing, and discounted cash flow (DCF). The emphasis is on the basic nature of valuation approaches and their logical underpinning. In particular, we focus on how techniques are applied to assets that are or might be traded in financial markets.

Estimating Value

Estimates of market value show up in many contexts. These run the gamut from appraising land or a family business, to assessing stock-option grants to executives, to acquiring large global firms, to launching initial public offerings of a company's equity, to making decisions about buying and selling stocks and bonds. Often, the goal is to estimate a current market price (i.e., what the asset would sell for in financial markets right now, given all the expectations and factors currently at work in the market). At times, the task can be quite easy when we can find traded assets that look just like the one we want to value. In other situations, however, value estimates are extremely difficult and imprecise. For instance, what is the value of a new technology?

. . .

Keywords: valuation, arbitrage pricing, multiples, discounted cash flow, present value, risk and return

Suggested Citation

Harris, Robert S. and Conroy, Robert M., Valuing Assets in Financial Markets. Darden Case No. UVA-F-1518, Available at SSRN: https://ssrn.com/abstract=1279954

Robert S. Harris (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4823 (Phone)
434-924-4859 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/harris.htm

Robert M. Conroy

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

HOME PAGE: http://www.darden.virginia.edu/faculty/conroy.htm

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