Economic valuation is a method of assessment that focuses on the overall financial impact of a company or project, as opposed to financial valuation which concentrates on the valuation of a company or intangible asset based on factors such as its future income.
Here are some key elements of economic valuation:
- Value creation: Economic valuation measures the net creation of added value by a company or project. This can include elements such as job creation, increased tax revenues and more.
- Multiplier effects: Economic valuation considers the multiplier effects of economic activity, meaning the indirect and induced effects on the company resulting from the expenses and investments made for an innovative project.
- Externality analysis: Economic valuation analyzes the social and environmental externalities, job creation and other outcomes stemming from the company’s or project’s activities.
- Evaluation of social benefits: Beyond direct economic impacts, economic valuation may also include an assessment of social and/or environmental benefits among others.
- Cost-benefit analysis: It can also include a cost-benefit analysis to compare the costs and benefits of the company or project.
Economic valuation is often used in the assessment of public investments, government policies, infrastructure projects and other initiatives that have a significant impact on the economy and society. It offers a broader perspective than financial valuation by considering externalities and overall socio-economic impacts.