Business Valuation Glossary

Navigate the essentials with our comprehensive glossary of business valuation terms.

Your business valuation decoder ring

The world of business valuation is filled with specialized terminology that can be perplexing. With our glossary of business valuation terms, including insights from the International Glossary of Business Valuation Terms, you’ll find convenient answers to clarify some of the most common and complex terms.

This resource is designed to make the intricate language of business valuation accessible and understandable to our clients. If you have any questions about how a valuation can impact your business, we invite you to schedule a free consultation.

Business Valuation Glossary

Adjusted Book Value Method:

This method adjusts all assets and liabilities, including off-balance sheet items, to their fair market values, providing a clearer picture of a company’s true worth.


The process of determining the value of a business, asset, or investment based on various methodologies and factors.

Appraisal Date:

The specific point in time at which the valuation applies, often critical for reflecting changing market conditions.

Arbitrage Pricing Theory:

A model used to estimate the cost of equity capital, incorporating multiple systematic risk factors beyond the market return.


A measure of a stock’s systematic risk, indicating its volatility relative to the broader market.

Blockage Discount:

A reduction applied to the market price of a large block of stock to account for the difficulty of selling it quickly without depressing the market.

Business Enterprise:

Any entity, whether commercial, industrial, service-oriented, or investment-focused, engaged in economic activities.

Business Risk:

The degree of uncertainty surrounding a company’s ability to generate expected returns, excluding those arising solely from its financial structure.

Capital Asset Pricing Model (CAPM):

A widely used model that calculates the expected return on equity investments by considering their systematic risk relative to the market.


The power to influence or direct the management and policies of a business entity, often associated with majority ownership.

Cost Approach:

A valuation method that determines the value of an asset by calculating the cost to replace its service capability.

Discount for Lack of Control:

A deduction from the value of an equity interest to reflect the absence of some or all control powers.

Discount for Lack of Marketability:

A deduction from the value of an ownership interest to reflect its relative lack of marketability.

Discount for Lack of Voting Rights:

A deduction from the per-share value of a holding to account for the absence of voting rights.

Economic Benefits:

Inflows such as revenues, net income, or cash flows generated by an asset or business enterprise over time.


The residual interest in an entity’s assets after deducting liabilities, representing the ownership claim on those assets.

Fair Market Value:

The price at which an asset or business would change hands between willing and knowledgeable parties, free from compulsion, in an open and unrestricted market.

Financial Risk:

The uncertainty associated with a company’s financial structure and its impact on expected returns.

Going Concern:

A business entity expected to continue its operations into the foreseeable future, often considered in valuations to reflect ongoing operations.

Going Concern Value:

The worth of a business expected to operate in the future, incorporating intangible aspects like a trained workforce, operational infrastructure, licenses, systems, and procedures.


An intangible asset representing the excess of the purchase price over the fair value of identifiable assets acquired in a business combination.

Horizontal Analysis:

A method of financial analysis that compares financial data over time to identify trends, changes, or anomalies.

Internal Rate of Return (IRR):

The discount rate at which the net present value of cash flows from an investment equals zero, representing the rate of return on an investment.


The ease with which an asset or security can be converted into cash without significantly affecting its market price.

Majority Control:

The degree of control provided by a majority ownership position in a business entity, allowing significant influence over decision-making.

Majority Interest:

An ownership interest greater than 50% of the voting rights in a business entity, often associated with control over decision-making.

Market Capitalization:

The total value of a company’s outstanding shares, calculated by multiplying the share price by the number of shares outstanding.

Market Capitalization of Equity:

The total value of a company’s equity is calculated by multiplying the share price by the number of outstanding shares.

Market Capitalization of Invested Capital:

The total value of a company’s invested capital, including equity and debt components, is calculated based on market prices.

Market Multiple:

A ratio used to value a company by comparing its financial metrics, such as earnings or revenue, to those of similar companies in the market.


The ease with which an asset or security can be bought or sold in the market, often influenced by factors such as liquidity and demand.

Marketability Discount:

A reduction in the value of an asset or security to account for its relative lack of marketability compared to similar assets or securities.

Merger and Acquisition Method:

A valuation approach that derives pricing multiples from transactions involving significant interests in companies operating in the same or similar industries.

Net Book Value:

The value of an asset on the balance sheet, calculated as its original cost minus accumulated depreciation, depletion, and amortization.

Net Present Value (NPV):

The difference between the present value of cash inflows and outflows over a specific period, used to assess the profitability of an investment.

Net Tangible Asset Value:

The value of a company’s tangible assets, calculated by subtracting liabilities and intangible assets from total assets.

Normalized Earnings:

Adjusted economic benefits to eliminate anomalies or non-recurring items, providing a more accurate representation of ongoing profitability.

Operating Income:

The profit generated from a company’s core operations, calculated by subtracting operating expenses from gross income.

Orderly Liquidation Value:

The estimated value of an asset or business when sold over a reasonable period, typically to maximize proceeds received.

Portfolio Management:

The process of selecting and managing a group of investments to achieve specific financial objectives.

Premise of Value:

The assumption regarding the circumstances under which an asset or business would be valued, such as a going concern or liquidation scenario.

Report Date:

The date on which valuation conclusions are transmitted to the client or stakeholders.

Residual Value:

The estimated value of an asset at the end of its useful life, often used in discounted cash flow analysis.

Special Purpose Entity:

An entity created for a specific purpose or transaction, often used to isolate financial risk or achieve tax advantages.

Systematic Risk:

The risk inherent to the entire market or market segment, affecting all investments to some degree.

Terminal Value:

The estimated value of an investment at the end of a specific period, often used in discounted cash flow analysis to account for future cash flows beyond the projection period.

Unsystematic Risk:

The risk specific to a particular company or industry, arising from factors such as management decisions or industry conditions.


The process of determining the worth of an asset, business, or investment using various methodologies and factors.

Valuation Approach:

A general method used to determine the value of an asset, business, or investment, often categorized into income, market, and asset-based approaches.

Valuation Date:

The specific point in time for the valuator’s opinion of value (also known as “Effective Date” or “Appraisal Date”).

Valuation Method:

A specific approach to determine value within valuation methodologies.

Valuation Procedure:

The act, manner, and technique of performing the steps of an appraisal method.

Valuation Ratio:

A fraction where a value or price serves as the numerator, typically used for comparative valuation purposes.

Weighted Average Cost of Capital (WACC):

The average rate of return required by investors, calculated by weighting the cost of debt and equity capital based on their respective proportions in the capital structure.


A function in financial analysis used to calculate the internal rate of return for irregular cash flows occurring at specific time intervals.

Yield Curve:

A graphical representation of interest rates for different maturities of bonds, typically showing the relationship between short-term and long-term interest rates.

Zero-Based Budgeting:

A budgeting method requiring all expenses to be justified for each new budget period, starting from a zero baseline.

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