The concept of value is something fundamental in finance, trade and personal finance. It is so important that it has many subcategories.
In economics, management, finance, or accounting, the notion of value comes in many forms:
- acquisition value
- shareholder value
- present value
- net present value
- added value
- market value
- gross value
- book value
- Customs value
- trade-in value
- value tax-free
- intrinsic value
- liquidation value
- market value
- market value
- new value
- net value
- replacement value
- residual value
- value at risk
- speculative value
- value inclusive of all taxes
- value (Marxist theory)
- Value (Economics)
- value of work
- use value
- sale value
- value of life
- 1 Value: definition
- 2 Value of a financial asset
- 3 Value: what is a fundamental concept in finance
- 4 Value and performance (or profitability)
- 5 The factors depends on the value of a financial asset
- 6 Inconsistency of values
What is a good estimate that can be made at any given moment.
Relativity of value
The value assigned to a given time at a good, a service, an active or even a liability (title…) varies according to several factors.
A man in the desert is not going to give the same value to the water as a man drowning. in this sense she introduced the notion of usefulness in the very broad sense (real or perceived as the desire to buy). You know, without doubt the tirade, a horse, my Kingdom for a horse.
In times of 'bubble' financial (market capitalization) or real estate, the value of real estate and stock is artificially "inflated" compared to quieter periods. the law of supply and demand in short
the nature and perception of the information
The nature and perception of information which people have (the detention of a positive property to evaluate information will contribute to give a higher value). The notion of real scarcity, perceived or artificial. example two dishes identical, a marked luxury will be perceived as the best.
Value of a financial asset
If we limit ourselves to financial assets, can be distinguished:
The value of a capital (cash, it is symbolized by the euro cash): the value of a capital today and at a later date is not the same.
Because of the value of the time, in a capitalistic world, time should be remunerated by interest or dividends out any other thing; where the need for financial calculations to determine the value today of a capital attached to a date future (discount calculations) and the value obtained at the end of a certain period of investment by capital placed today (capitalization calculations);
The value of a listed security:
the side constantly varies in time. The side of a title is the value assigned by the market (generally by the Exchange), in principle based on supply and demand. Supply and demand are themselves determined by several factors. This is called market value.
The market value is that which is given by a market or that is calculated from information from a market.
Value: what is a fundamental concept in finance
The value became the central concept of modern corporate finance, which has led theorists to wonder about the following points:
- How to determine a stock's theoretical value?
- What relationship is there between risk level and value?
- What is the value of a company at a given date?
- How to maximize the value of the company?
- the debt has an impact on the value of the company?
- on what condition will an investment be creator of value?
- at what price to sell?
The study of these issues has helped researchers develop new theories relating particularly to financial markets and set new tools.
Value and performance (or profitability)
In finance, it is common to reason on the rate of return (or profitability). The latter is calculated by relating the gain produced by a financial asset (title, investment…) to the value of this asset. This particularly important concept is developed in my articles.
The rate of return can be calculated ex post, for a period (example: rate of return on a fixed rate bond) or evaluated for a period future (projected rate of return).
In the latter case, the calculation of the rate is based on forecasts or expectations. Any change to one of the terms of the calculation (desired gain or value of the asset) has an impact on the rate of return that is likely to fluctuate over time.
In principle, there is a fairly subtle difference between performance and profitability:
- rate of return is used when calculating data well-known: rate of return from action. fixed rate actuarial yield of a bond issue to rate… ;
- rate of return is more met in case of forecast calculation (rate of return of an investment project or rate of return expected action) when the result has a random character (a company profitability rate).
Their job in practice does not always account for this difference. In this book, we will use these two terms considering them as synonymous and respecting the uses in this area.
The factors depends on the value of a financial asset
The value of a financial asset, depends for the most part (not exhaustive) of the following factors:
- time: the value of a capital or a title is not the same today and in a year. An amount not invested loses value over time because of inflation. Conversely a furniture collection gains value depending on time (increasing rarity). As the value of securities, particularly stocks, she constantly varies for other reasons than the single passage of time;
- the risk: the risk level affects the value. In principle, when the risk increases, the value decreases (and);
- the quality and reliability of the information: false or incomplete information will result in a mistrust that will lead to a decrease in the value assigned to a title listed.
- The level of scarcity (artificial /reel or perceived) can determine the value
- Supply and demand (the need and the possibility to satisfy, the effect group, so if everyone wants A, should be assumed good so more world desires has)
- The location (for a real estate asset)
For stocks and bonds, only time, risk and information factors we really of the influence.
Inconsistency of values
It is quite common for human beings to make psychological biases, so the perceived value can be greatly changed. To cite just one example, the effect of scarcity can influence the value of a property.