Valuation is a fundamental concept in investing that helps determine the intrinsic value of a company or asset. It allows investors to assess whether a stock is overvalued, undervalued, or fairly priced compared to its current market price. Understanding valuation is crucial for making informed investment decisions and managing portfolio risk effectively.

At its core, valuation involves estimating the future cash flows a business can generate and discounting them to their present value. Various valuation methods are used depending on the nature of the company and the availability of data. The most common approaches include the Discounted Cash Flow (DCF) method, Price-to-Earnings (P/E) ratio, Price-to-Book (P/B) ratio, and Enterprise Value to EBITDA (EV/EBITDA) multiple. Each technique provides unique insights into a company’s financial health and growth potential.

For example, the DCF method focuses on projecting future cash flows, making it suitable for companies with predictable earnings. On the other hand, relative valuation models like P/E or P/B ratios are often used for comparing similar companies within the same industry. Investors should remember that no single model is perfect—using multiple valuation methods helps cross-verify results and improve accuracy.

In the Indian stock market, investors must rely on publicly available data such as annual reports, financial statements, and regulatory filings to perform valuations ethically and transparently. As per SEBI guidelines, investment decisions should be made based on factual information and thorough research rather than speculative or promotional claims. Understanding valuation not only supports smarter investing but also promotes long-term wealth creation through disciplined and data-driven strategies.