Algorithm and Valuation

noun

• A precise rule (or set of rules) specifying how to solve some problem.
  • synonyms: algorithmic rule, algorithmic program

• (n.) The art of calculating by nine figures and zero.
• (n.) The art of calculating with any species of notation; as, the algorithms of fractions, proportions, surds, etc.

Algorithm is a complex mathematical model. In credit scoring, it is used to compare data in millions of credit reports and predict a person's likelihood to repay debts.

noun

• An appraisal of the value of something.
  • usage: "he set a high valuation on friendship"
  • synonyms: evaluation, rating
• Assessed price.
  • usage: "the valuation of this property is much too high"

• (n.) The act of valuing or of estimating value or worth; the act of setting a price; estimation; appraisement; as, a valuation of lands for the purpose of taxation.
• (n.) Value set upon a thing; estimated value or worth; as, the goods sold for more than their valuation.

Valuation is the process of estimating the value, or worth, of an asset or investment. Sometimes it means determining a fixed amount, such as establishing the value of your estate after your death. Other times, valuation means estimating future worth. For example, fundamental stock analysts estimate the outlook for a company's stock by looking at data such as the stock's price-to-earnings (P/E), price-to-sales, and price-to-book (or net asset value) ratios. In general, a company with a high P/E is considered overvalued, and a company with a low P/E is considered undervalued. However, as the prices of many rapidly growing Internet stocks are moving skyward, often in the presence of little-or even no-earnings, many analysts are reconsidering the old valuation models and looking more closely at a company's long-term potential to develop its products and expand its markets.