Whatever may be the degree of complexity and method of satisfaction, valuation is always an estimate - explain citing principles to be kept in mind for valuation.

Valuation is guessing with tact and intelligence. Different methods are adopted to record the price as near as possible on actual disposal. Certain principles need to be borne in mind before finalising Valuation Report. Report may be required for specific assets or may be for whole business or undertaking. In case of whole business or undertaking the past data on segment performance is required to be commented and taken into consideration. Valuation as per the report is taken as successful when the fair market value is arrived at the satisfaction of the seller company and the buyer company is willing to pay if it is beneficial to owners. Broadly following principles are to be kept in mind for valuation: Principle of Time Value of Money: This principle suggests that the value can be measured by calculating the present value of future cash flows discounted at the appropriate discount rate. Principle of Risk and Return: This principle believes that the investors are basically risk averse and on the other hand expects higher amount of wealth. Higher the risk, higher may be possibility of return and vice versa. Principle of Substitution: This principle believes that understanding the market with competitive forces is very important in order to decide the price consideration. The risk averse investor will not pay more than that of the substitute available in the market. Principle of Alternatives: This principle suggests that one should explore the various alternatives available in the market and should not rest only on one option. The benefits of vetting of various alternatives will give a comparative valuation and a prudent investor will choose the most beneficial alternative to his portfolio. Principle of Expectation: Cash flows are based on the expectations about the performance in future and not the past. In the case of mature companies, we may assume that the growth from today or after some certain period would be constant. Principle of Reasonableness: In valuation the principle of reasonableness is most important. It takes into consideration various aspects viz. nature of business, historical background, brand image, book value of the stock, earning capacity, dividend track record, etc.