valuation

1. General: Appraising or estimating the worth of something having economic or monetary value.

2. Insurance: Determination of the worth of the asset to be insured or that which has been damaged or lost.

3. International trade: Determination of the dutiable value of imports by the customs authorities. The GATT (now WTO) Customs Valuation Code obligates the signatory governments to use the transaction value (actual price paid by the importer to the exporter) as the principal basis for imposing duties. Where transaction value cannot be used, the secondary basis of value, such as transaction value of identical or similar merchandise, computed value, or deductive value may be used.

4. Securities: Placing a value on a stock based on the market value of the issuer's assets and the outlook for its earnings. Valuation is usually expressed as a Price/Earnings ratio (P/E).

Options should be structured carefully. Absent special factors, they should have built into them a retained-earnings or carrying cost factor. Equally important, they should be priced realistically. When managers are faced with offers for their companies, they unfailingly point out how unrealistic market prices can be as an index of real value. But why, then, should these same depressed prices be the valuations at which managers sell portions of their businesses to themselves? Except in highly unusual cases, owners are not well served by the sale of part of their business at a bargain price -- whether the sale is to outsiders or to insiders. The obvious conclusion: options should be priced at true business value.