POSITIVE VALUATION - A REAL VALUE APPROACH TO INVESTMENT VALUATION

Abstract

The use of all-risk-yield or initial yield in the conventional income approach to investment valuation has evoked many criticisms. Students of valuation and even some experienced valuers are unaware of the constituent parts of the initial yield. Furthermore, under a rapid changing society, the conventional approach no longer satisfies the increasing needs of the investors and valuers for more meaningful explanation to figures used in the valuat ion exercises undertaken and to deal with practical problems faced by the profession. Positive Valuation, first initiated by Dr Ernest Mood, attempts to solve some of the problems faced by the convent ional approach. It deals with the problems in the use of initial yield by separating two important components i.e. inflation and growth prospect, from the initial yield. By so doing, the effects of these two components can be examined and explained. This approach also incorporates the practical problems faced by valuers into the valuation model i.e. the effects of taxation and finance. This dissertation aims at studying the principles and concepts underlying the Real Value Approach. It offers an explanation to the derivation of various formulae and equations used in this approach and examines the procedures involved in the using of this technique.