Question

in general terms, how is value measured? what three factors determine value? how doesneach factor affect value?

Answer 1

In general terms value is measured using the cash flows of a company or an entity. The cash flows that are used are future projected cash flows and the future projected cash flows are then discounted using the cost of capital or opportunity cost to determine the present value of all future cash flows. The present value of all future cash flows is the measurement metric of value.

Three factors that determine value are economic conditions, rules and regulations of government and competitive environment.

The first factor is economic conditions and during recession and economic slowdown value will fall and during periods of economic book incremental value will be created. Government rules and regulations also directly affect value. If government eases monetary policy then additional liquidity will be generated and incremental value will be created. Similarly government rules and regulations with regards to interest rates, FDI (foreign direct investment) etc. will affect value. Lastly competitive environment also affects value. High degree of competition will force firms and companies to innovate and differentiate their offerings and this will create incremental value.