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. Insurance

    A contract (policy) in which an individual or entity receives ...
  3. Accounting Method

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

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

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

    1. The value at which an asset is carried on a balance sheet. ...
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. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  3. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  4. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  5. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  6. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
Trading Center