In finance, valuation is the process of estimating what something is worth. Items that are usually valued are a financial asset or liability. Valuations can be done on assets or on liabilities (e.g. , bonds issued by a company). Valuations are needed for many reasons such as investment analysis, capital budgeting, merger and acquisition transactions, financial reporting, taxable events to determine the proper tax liability, and in litigation.
There are many different ways of performing valuations. Most fundamental investors tend to favor valuations based on the book value of company. Alternate methods include discounted cash flow and multiples based valuations.