Embedded Value

AAA

DEFINITION of 'Embedded Value'

A common valuation measure used outside North America, particularly in the insurance industry. It is calculated by adding the adjusted net asset value and the present value of future profits of a firm. The present value of future profits considers the potential profits that shareholders will receive in the future, while adjusted net asset value considers the funds belonging to shareholders that have been accumulated in the past.

Embedded Value

INVESTOPEDIA EXPLAINS 'Embedded Value'

Embedded value is a conservative valuation method, as it excludes certain aspects of goodwill from its calculation of a company's worth. Goodwill includes intangible assets that increase the value of a company beyond its assets minus liabilities, such as strong management, good location and a happy workforce. Furthermore, to add to its conservatism, the EV calculation of a firm does not allow for any increase in future business.

RELATED TERMS
  1. Goodwill

    An account that can be found in the assets portion of a company's ...
  2. Accounting Method

    The method by which income and expenses are reported for taxation ...
  3. Net Asset Value - NAV

    A mutual fund's price per share or exchange-traded fund's (ETF) ...
  4. Present Value - PV

    The current worth of a future sum of money or stream of cash ...
  5. Book Value

    1. The value at which an asset is carried on a balance sheet. ...
  6. Insurance

    A contract (policy) in which an individual or entity receives ...
Related Articles
  1. Using The Price-To-Book Ratio To Evaluate ...
    Forex Education

    Using The Price-To-Book Ratio To Evaluate ...

  2. Can You Count On Goodwill?
    Personal Finance

    Can You Count On Goodwill?

  3. Intangible Assets Provide Real Value ...
    Markets

    Intangible Assets Provide Real Value ...

  4. How the Affordable Care Act Changed ...
    Insurance

    How the Affordable Care Act Changed ...

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center