Glossary
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D
Depreciated Replacement Cost Method
A method under the cost approach that indicates value by calculating the current replacement cost of an asset less deductions for physical deterioration and all relevant forms of obsolescence.
— SEE also: Cost Approach; Economic Obsolescence; Functional Obsolescence; Obsolescence
Discount for Lack of Control
An amount or percentage deducted from a pro-rata share of the value of 100 percent of an equity interest in a business, to reflect the absence of some or all of the powers of control.
— SEE also: Control Premium
Discount Rate
A rate of return used to convert a future monetary sum or cash flow into present value.
Discounted Cash Flow Method
A method within the income approach in which a discount rate is applied to future expected income streams to estimate the present value.
E
Economic Life
The total period of time over which an asset is expected to generate economic benefits for one or more users.
— SEE also: Useful Life
Economic Obsolescence
A loss of utility caused by factors external to the asset, especially factors related to changes in supply or demand for products produced by the asset, that results in a loss of value.
— SEE also: External Obsolescence; Functional Obsolescence; Obsolescence; Physical Obsolescence
Enterprise Value
The total value of the equity in a business plus the value of its debt or debt-related liabilities, minus any cash or cash equivalents available to meet those liabilities.
— SEE also: Invested Capital
Entity Specific Factors
Factors that are specific to an entity and not available to market participants generally.
— SEE: IVS Framework
Equity
The owner’s interest in an asset or business after deduction of all liabilities.
Equity Instrument
Any contract that creates a residual interest in the assets of an entity after deducting all of its liabilities.
Equity Risk Premium
A rate of return added to a risk-free rate to reflect the additional risk of equity instruments over risk free instruments (a component of the cost of equity capital or equity discount rate).
Excess Earnings
That amount of anticipated economic benefits that exceeds an appropriate rate of return on the value of a selected asset base (often net tangible assets) used to generate those anticipated economic benefits.
Excess Earnings Method
A method of estimating the economic benefits of an intangible asset by identifying the cash flows associated with the use of the asset and deducting a charge reflecting a fair return for the use of contributory assets.
— SEE also: Contributory Asset Charges; Greenfield Method; Multi-Period Excess Earnings Method
External Obsolescence
A loss of utility caused by economic or locational factors external to the asset that results in a loss of value.
— SEE also: Economic Obsolescence; Functional Obsolescence; Obsolescence; Physical Obsolescence
External Valuer
A valuer who is not employed by the owner or manager of an asset.
F
Fair Value
(1) The estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties.
For use in financial reporting under International Financial Reporting Standards, fair value has a different meaning:
(2)
In IFRS 13 “Fair Value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”
The distinction between these two definitions and their usage is discussed in the IVS Framework paras 39-43 and IVS 300, paras G1-G2.
Fairness Opinion
An opinion as to whether or not the consideration in a sale or transfer of a business is fair to its equity holders.
Financial Instrument
A contract that creates rights or obligations between specified parties to receive or pay cash or other financial consideration, or an equity instrument.
Financial Reporting Standards
Any recognised or adopted standards for the preparation of periodic statements of an entity’s financial position. These may also be referred to as accounting standards.
— SEE also: International Financial Reporting Standards
Financial Risk
The degree of uncertainty of realizing expected future returns of the business resulting from financial leverage.
— SEE also: Business Risk; Market Risk; Systematic Risk
Financial Statement
A periodic statement of an entity’s financial position
Free Cash Flows to Equity
Cash flows available to pay out to equity owners (in the form of dividends) after funding operations of the business, making necessary capital investments, and increasing or decreasing debt financing.
— SEE also: Free Cash Flows to the Firm
Free Cash Flows to the Firm
Cash flows available to pay out to equity holders (in the form of dividends) and debt investors (in the form of principal and interest) after funding operations of the business enterprise and making necessary capital investments.
— SEE also: Free Cash Flows to Equity
Functional Obsolescence
A loss of utility resulting from inefficiencies in the subject asset compared to its replacement that results in a loss of value.
— SEE also: Economic Obsolescence; External Obsolescence; Obsolescence; Physical Obsolescence
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