The Value Of Asset Valuation Essay

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An asset can be described as any unit that has value in terms of money, or has a potential creating monetary value in the future. (Phatak 2016) What a business is worth is usually determined by the net value of its assets. Asset valuation is critical when making investment decisions. Valuation, simply put, is the process analysts’ use to ascertaining whether an investment decision is worth it or not. Investments are usually made with an expectation that the value of the asset will grow enough to pay back not only the sum of the money invested but also to give a profitable return, even after considering the risks involved. This is expected of all investments including bonds, shares, derivatives etc. (Koller, Goedhart, Wessels 2010 p. 1). To be able to determine the investment potential of business, asset valuation must be considered. Through asset valuation one can analyze the future potential in terms of returns if investment is done on the asset. 1. The importance of asset valuation Asset valuation is significant in ensuring that the right price of an asset is paid when investing. In making an investment decision, it is important to know the exact amount that will be paid for an asset. If valuation is done correctly, an investor can be able to budget and plan for their investment and taking into consideration market factors, approximate how much returns they will make from their investment. If valuation is done poorly, an investor may overpay for an Asset resulting in
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