Learn the four most common terms of accounting: Face Value, Fair Value, Market Value, and Book Value. | Brian Feroldi posted on the topic | LinkedIn (2024)

Good summary

Really easy to communicate and understand.

+ Intangibles Valuation may be segregated in these 4 methods.

Good to know

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Face Value, Fair Value, Market Value, and Book Value.What's the difference?The word "valuation" is used a lot in investing.There are multiple ways to express how assets are valued. Here’s a quick guide on the four most common terms:🔹 Face ValueThe original value of a security as stated by its issuer. It’s typically fixed and used mainly for bonds and common stock issuance.🔹 Fair ValueAn estimate of the price at which an asset should trade in a "fair" market. This number is calculated by a private party using one of the various valuation techniques such as a discounted cash flow model.🔹 Market ValueThe current trading price of an asset. This reflects what current market price of an asset on an exchange. This price fluctuates moment by moment according to market demand.🔹 Book ValueCalculated from a company's balance sheet. Assets minus liabilities. It reflects the accounting value of a company's equity.If you invest, it's critical to understand the difference between these terms!***P.S. Want to master the basics of accounting (for free)?I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English.Get started here (It's free) → https://lnkd.in/e5GrMaQDIf you enjoyed this post, please repost ♻️ to share with your audience.

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Not all valuations of the same asset or business are the same nor are their assumptions always the same There are a lot of judgements on key inputs like projected cash flows, interest rates, terminal values, obsolescence, etc. This article provides a good summary of the different basis/models and visual from Brian Feroldi ⬇️ It's important to have knowledgeable and experienced professionals to ensure that any valuations used for tax or accounting purposes meet the conditions for use and assurance by third parties when necessary.

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Important things

Good helpful information about assets valuation when going to invest.

Quick Ratio vs. Current Ratio 📊What's the difference?QUICK RATIO:Definition: Measures a company’s ability to pay its current liabilities without relying on the sale of inventory.Formula: (Cash + Marketable Securities + Accounts Receivable) / Current LiabilitiesAnalysis:- Fragile: <0.7- Robust: 0.7 - 1.5- Anti-Fragile: 1.5+Focus:More conservative measure focusing on the most liquid assets.Usefulness:- Preferred in industries where inventory is not easily liquidated or is not a major component of current assets.Limitation:- May not be adequate for businesses where inventory is a significant part of current assets and can be quickly converted to cash.CURRENT RATIO:Definition: - Measures a company’s ability to pay its current liabilities with all of its current assets.Formula: Current Assets / Current LiabilitiesAnalysis:- Fragile: <0.1- Robust: 1.0 - 2.5- Anti-Fragile: 2.5+Focus:- Broader measure including all assets that are expected to be liquidated within a year.Usefulness:- Useful for getting a general idea of the liquidity, but can be skewed by large inventories or other less liquid current assets.Limitation:- May overstate liquidity if current assets include significant amounts of inventory or other less liquid assets.Was anything confusing? Please let me know below. I'll be happy to explain further.➕ Follow me Brian Feroldi for more content like this.***P.S. Want to level up your accounting skills? Join me for a FREE webinar on Wed, Feb 14th at 12:00 noon EST.Topic: 10 Metrics Every Investor Must KnowRSVP here: https://lnkd.in/eDeSEXjMIf you found this post useful, please share (repost ♻️) to help make LinkedIn a better platform for all.

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Quick Ratio and Current Ratio are both financial metrics used to assess a company's short-term liquidity, indicating its ability to meet its short-term obligations. While they are similar in that they both provide insight into a company's liquidity, they differ in terms of the components included in the calculation.

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