Valuation is a process of determining the intrinsic or the “true” value of equities in order to assist investment decisions of buying or selling a stock. In other words, how are the prices of securities determined in the market and do these market prices reflect their intrinsic value? The purpose of valuation is to determine the real meaning of the disclosed profit or to determine the true future value of the security, company or asset. Valuation not only helps us to understand the real value but also what are the sources of the value. Valuation is also important for the issuing companies as it can illustrate successful company operations, e.g., during the launch of a new product and to establish the company’s performance track record. For further details see: ISRA, Islamic Financial System; Principles and Operations.
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