Purpose of Valuation of Share

What is the Purpose of Valuation of Share?

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Purpose of Valuation of Share

The reason for stock valuation is to predict the future price or potential market prices for the investors to time their sales or purchase of investments. The stock valuation fundamentals aim to value the “Intrinsic” value of the stock that shows the profitability of the business and its future market value.

Stock valuation is an important tool that can help you make informed decisions about trading. It is a technique that determines the value of a company's stock by using standard formulas. It values the fair market value of a financial instrument at a particular time. The reason for stock valuation is to predict the future price or potential market prices for the investors to time their sales or purchase of investments.

Valuation Approaches

The three basic approaches to financial valuations are the cost approach, the market approach and the income approach. The cost approach assumes that a buyer will purchase an asset for no more than an asset of equal usefulness. The market approach assumes that in free markets, supply and demand will drive the price of a stock to a point where the number of buyers and sellers balance. The income approach defines value as the net present value of a company's future free cash flows.