Introduction to Valuation
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Introduction to Valuation

Valuation Types

1. Financial Valuation - also known as external valuation since its role is to communicate value to an outsider (reporting). Follows stringent requirements imposed by its final usage:

2. Managerial Valuation - also known as internal valuation being used by organizations for:

  • Development
  • Investing
  • Control

Managerial Valuation

Analytic Projects use Managerial Valuation. And since Managerial Valuation is based on the believe that the main purpose of any investment is to bring profit the valuation process measures the discounted cash flows (absolute value model). Although sometimes criticized as ignoring the human factor, it brings undeniable benefits as:

  • Optimal trade-off between benefits and costs (including risks)
  • Builds support for organizational consensus
  • Manage expectations

Managerial valuations use specific rules when done for:

  • Descriptive Analytics (viewed as a cost center)
  • Predictive Analytics (viewed as a profit center)