Fair Market Value

Definition of 'Fair Market Value'

The price that a given property or asset would fetch in the marketplace, subject to the following conditions: 1. Prospective buyers and sellers are reasonably knowledgeable about the asset; they are behaving in their own best interests and are free of undue pressure to trade. 2. A reasonable time period is given for the transaction to be completed. Given these conditions, an asset's fair market value should represent an accurate valuation or assessment of its worth.

Investopedia explains 'Fair Market Value'

Fair market values are widely used across many areas of commerce. For example, municipal property taxes are often assessed based on the fair market value of the owner's property. Depending upon how many years the owner has owned the home, the difference between the purchase price and the residence's fair market value can be substantial. Fair market values are often used in the insurance industry as well. For example, when an insurance claim is made as a result of a car accident, the insurance company covering the damage to the owner's vehicle will usually cover damages up to the fair market value of the automobile.

Investment Value
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The estimated value of a certain real estate investment to a particular individual or institutional investor. May be greater or less than market value , depending on the investors particular situation.

Example: The investment value of vacant land in the path of growth would be greater for a young aggressive investor who has time to wait for fruition than for an elderly widow who needs cash flow for living costs. Similarly, the investment value of a tax shelter investment is greater for a high-tax-bracket investor than for a tax-exempt pension plan.

Intrinsic Value
Definition of 'Intrinsic Value'
1. The actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the current market value. Value investors use a variety of analytical techniques in order to estimate the intrinsic value of securities in hopes of finding investments where the true value of the investment exceeds its current market value. 2. For call options, this is the difference between the underlying stock's price and the strike price. For put options, it is the difference between the strike price and the

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underlying stock's price. In the case of both puts and calls, if the respective difference value is negative, the instrinsic value is given as zero.

Investopedia explains 'Intrinsic Value'

1. For example, value investors that follow fundamental analysis look at both qualitative (business model, governance, target market factors etc.) and quantitative (ratios, financial statement analysis, etc.) aspects of a business to see if the business is currently out of favor with the market and is really worth much more than its current valuation. 2. Intrinsic value in options is the in-the-money portion of the option's premium. For example, If a call options strike price is $15 and the underlying stock's market price is at $25, then the intrinsic value of the call option is $10. An option is usually never worth less than what an option holder can receive if the option is exercised.

Fair Value
Definition of 'Fair Value'
1. The estimated value of all assets and liabilities of an acquired company used to consolidate the financial statements of both companies. 2. In the futures market, fair value is the equilibrium price for a futures contract. This is equal to the spot price after taking into account compounded interest (and dividends lost because the investor owns the futures contract rather than the physical stocks) over a certain period of time.

Investopedia explains 'Fair Value'

2. The "fair value" quoted on TV refers to the relationship between the futures contract on a market index and the actual value of the index. If the futures are above fair value then traders are betting the market index will go higher, the opposite is true if futures are below fair value.

Goodwill
Definition of 'Goodwill'
An account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company is purchased by another company. In an acquisition, the amount paid for the company over book value usually accounts for the target firm's intangible assets.

Investopedia explains 'Goodwill'

Goodwill is seen as an intangible asset on the balance sheet because it is not a physical asset like buildings or equipment. Goodwill typically reflects the value of intangible assets such as a strong brand name, good customer relations, good employee relations and any patents or proprietary technology.

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Going-Concern Value
Definition of 'Going-Concern Value'
The value of a company as an ongoing entity. This value differs from the value of a liquidated company's assets, because an ongoing operation has the ability to continue to earn profit, while a liquidated company does not.

Investopedia explains 'Going-Concern Value'

This value includes the liquidation value of a company's tangible assets as well as the present value of its intangible assets (such as goodwill). The going-concern value is worked into the purchase price of a company, and is the main reason why the purchase price of a company tends to be higher than the current value of the assets of the company. For example, the liquidation value of Widget Corp. is $10 million. This sum represents the current value of inventory, buildings and other tangible assets that can be sold assuming that the company is completely liquidated. However, Widget Corp.'s goingconcern value could very well be $60 million, as the company's reputation of being the world's leading widget producer and its ownership of patents and associated rights for widget production mean that the company should have a large steady stream of future cash flows.

Liquidation Value
Definition of 'Liquidation Value'
The total worth of a company's physical assets when it goes out of business or if it were to go out of business. Liquidation value is determined by assets such as the real estate, fixtures, equipment and inventory a company owns. Intangible assets are not included in a company's liquidation value. Intangible assets include a business's intellectual property, goodwill and brand recognition.

Investopedia explains 'Liquidation Value'

If a company were to be sold rather than liquidated, both liquidation value and intangible assets would be considered to determine the company's going-concern value. Value investors will look at the difference between a company's market capitalization and its going-concern value to determine whether the company's stock is currently a good buy. Liquidation value can also refer to the cash value of a single asset.

Book Value
Definition of 'Book Value'
1. The value at which an asset is carried on a balance sheet. To calculate, take the cost of an asset minus the accumulated depreciation. 2. The net asset value of a company, calculated by total assets minus intangible assets (patents, goodwill) and liabilities. 3. The initial outlay for an investment. This number may be net or gross of expenses

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such as trading costs, sales taxes, service charges and so on. Also known as "net book value (NBV)." In the U.K., book value is known as "net asset value."

Investopedia explains 'Book Value'

Book value is the accounting value of a firm. It has two main uses: 1. It is the total value of the company's assets that shareholders would theoretically receive if a company were liquidated. 2. By being compared to the company's market value, the book value can indicate whether a stock is under- or overpriced. 3. In personal finance, the book value of an investment is the price paid for a security or debt investment. When a stock is sold, the selling price less the book value is the capital gain (or loss) from the investment.

Insurable Value
The cost of total replacement of destructible improvements to a property. Example: Although the market value of the home was $250,000, its insurable value was $200,000, based on an allocation of $50,000 to the land and replacement costs of $200,000 for the structure and other man-made improvements.

Replacement Value
The cost of replacing an asset in the case that it is damaged or destroyed. That is, the replacement value changes according to themarket value of the asset. An individual or company may buy a replacement cost insurance policy to cover the replacement value. It is also called the replacement cost.

Salvage Value
Definition of 'Salvage Value'
The estimated value that an asset will realize upon its sale at the end of its useful life. The value is used in accounting to determine depreciation amounts and in the tax system to determine deductions. The value can be a best guess of the end value or can be determined by a regulatory body such as the IRS.

Investopedia explains 'Salvage Value'

The salvage value is used in conjunction with the purchase price and accounting method to determine the amount by which an asset depreciates each period. For example, with a straight-line basis, an asset that cost $5,000 and has a salvage value of $1,000 and a useful life of five years would be depreciated at $800 ($5,000$1,000/5 years) each year.

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Within the tax system, when a person donates a car he or she receives a tax deduction. The value of this deduction depends on the salvage value of the car. This salvage value is determined to be the current fair market value that could be obtained had the car been sold on that day rather than donated.

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