4.1 VARIOUS CONCEPTS OF VALUE

There are various concepts of value. Each one of these concepts is significant in one way or the other. The approach to these concepts may be grouped under three heads. These are:

  1. The asset approach that explains the book value, liquidation value, going-concern value and the replacement value;
  2. The market value approach that explains the market value;
  3. The capitalised earning approach that explains the intrinsic or real value of a firm.

4.1.1 Intrinsic Value

Let us begin with intrinsic value also known as real or fair value. The intrinsic value of a firm’s asset represents the present value of its future earnings discounted at an appropriate or required rate of return. The value of securities is exactly analogous ...

Get Fundamentals of Financial Management, Third Edition now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.