Certified Valuation Analyst (CVA) Practice Exam

In a business valuation, what is emphasized as important to consider at the valuation date?

1. Projected future earnings

2. Historical trends

3. Facts known or knowable

4. Market sentiments

The correct answer is: Facts known or knowable

In a business valuation, it is crucial to focus on facts known or knowable at the valuation date because they provide an accurate and realistic assessment of the company's worth based on the available information at that specific point in time. This principle underlines the importance of basing the valuation on data that can be substantiated and verified, rather than speculative or projected figures that may not reflect the actual conditions. By considering only those facts that are known or can be reasonably inferred at the valuation date, the analyst ensures that the valuation remains grounded in reality, avoiding the pitfalls of uncertainty or over-optimism that can arise from projections or assumptions about future performance. This approach aligns with valuation standards and helps ensure that the valuation withstands scrutiny from investors, legal proceedings, or other stakeholders. Although projected future earnings, historical trends, and market sentiments can play a role in understanding a business's performance and potential, they are not as critical as the verifiable facts available at the specific valuation date, as these facts form the foundation upon which all other analyses are built. Ultimately, a valuation based on solid, knowable facts stands the best chance of being credible and defensible.