Short definition: Valuation is the process of determining the economic value of an asset, business, or company.
Explanation: Valuation is used in a variety of contexts, such as investment analysis, mergers and acquisitions, financial reporting, and tax planning. It involves analyzing various financial and non-financial factors to estimate the fair value of the asset or entity in question. There are various valuation methods, including discounted cash flow analysis, comparable company analysis, and precedent transaction analysis.
Example: An investor may use valuation to determine whether a stock is undervalued or overvalued by comparing its market price to its estimated intrinsic value.
Additional information (optional): Valuation is not an exact science and requires a certain degree of judgment and expertise. The final valuation result can be influenced by the choice of valuation method, the assumptions used, and the interpretation of data.