We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is Equity Valuation?

Jim B.
By
Updated May 17, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Equity valuation is a process used by investors to attempt to determine the value of stocks, or equities. By determining the value of a company, both in the present and projected into the future, and comparing its value to its market price, an investor can decide whether or not the company represents a worthy investment. Many investors practice quantitative equity valuation, which means that they use different financial measurements and ratios as a way to come up with a stock's value. Other investors prefer a more subjective form of valuation, measuring intangible assets, like company leadership or marketing strategies, which might set a company apart from its competitors.

When an investor buys stock in a company, he is essentially gaining a minority ownership in the company, which is also known as equity. For that reason, investors wish to know about the financial prospects of their target companies, and equity valuation is one way to gauge these prospects. Valuation allows individuals to take some of the guesswork out of investing, although it cannot remove all of the risks.

If executed properly, equity valuation can determine the intrinsic value of a specific company. The intrinsic value is the true measurement of the value of a company, regardless of how it is judged by the market. In fact, if the intrinsic value of a company is significantly higher than the company's current market price, the company is probably a solid investment. But measuring intrinsic value is an inexact science, with methods often varying from investor to investor.

Some investors prefer to perform their equity valuation by the numbers. These investors are likely to study income reports and balance sheets of companies to gather important financial information about cash flow, income, debt, and so on. Ratios can be created from these statistics which will shed light on a company, especially when these ratios are compared to other companies within the same industry. Ideally, an investor can project a company's financial prospects into the future with these numbers, thus identifying its potential.

For some investors, the numbers fall short when it comes to equity valuation. Such investors are more likely to rely on those aspects of a company that can't be measured statistically. As an example, a company might be suffering through difficult financial times, but the hiring of a new CEO with an outstanding track record could signal improved fortunes in the future. In some cases, investors can use a combination of both quantitative and qualitative techniques to make a complete assessment of their equity options.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Jim B.
By Jim B.
Freelance writer - Jim Beviglia has made a name for himself by writing for national publications and creating his own successful blog. His passion led to a popular book series, which has gained the attention of fans worldwide. With a background in journalism, Beviglia brings his love for storytelling to his writing career where he engages readers with his unique insights.
Discussion Comments
Jim B.
Jim B.
Freelance writer - Jim Beviglia has made a name for himself by writing for national publications and creating his own...
Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.