TeachMeFinance.com - explain value
value -- the monetary worth of property, goods or services. See fair market value, fair value, and net realizable value.
fair market value -- the price at which property would be transferred from a willing seller to a willing buyer, each of whom has a reasonable knowledge of all pertinent facts concerning the property in question and similar properties on the market, and neither is under any compulsion to buy or sell. Most accountants consider fair market value to be slang for market value.
fair value -- a method of determining what a troubled asset would be worth (its present value) if its present owner sold it in the current market. Fair value assumes a reasonable marketing period, a willing buyer and a willing seller. It assumes that the current selling price (its present value) would rise or fall in relation to the asset's future earnings potential. To calculate that price, fair value converts the asset's future earnings into what they are worth in today's dollars, using a formula that discounts the assets' future net cash flows . The discount is based on the fact that a dollar earned in the future is equal to, say, $.75 invested today plus interest over an equivalent period of time. Thus, a dollar received today and invested is worth more than a dollar received in the future. Fair value, therefore is based on a formula incorporating rates of interest earned. While market value measures the sales price agreed to by the buyer and seller, OTS defines fair value as measuring the value of what the seller would receive less selling costs. Fair value is one accounting method used to calculate the present value of an asset (a loan) at some point after the loan has become past due and book value is no longer valid. See net realizable value.
net realizable value -- a method of determining the present value of a troubled asset to its present owner based on the assumption that the asset will be held for a period of time and sold at some future date. The present value includes future earnings the asset is expected to generate, less the cost of owning, holding, developing and operating the asset. To compensate for these costs, the asset's projected future net cash flows are discounted using a formula that incorporates the cost of capital (the cost of paying dividends and interest). Net realizable value, therefore, is based on a formula incorporating what the asset must earn in order to pay for its share of the costs of running the business. Net realizable value is one accounting method used to calculate the present value of an asset (a loan) at some point after the loan has become past due and book value is no longer valid. See fair value.
Value -- The rate of worth set upon a thing.
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