ELI5: Explain Like I'm 5

equity valuation

Equity valuation is a way of figuring out how much something is worth. We do this by looking at how much money the thing (in this case, a company’s equity) could make in the future. We figure out the future income by looking at the company’s earnings, profits, and assets. We then compare that future income with the money it costs to own the equity, like taxes and costs of running the business, and arrive at a value - how much the equity is worth.