Fair Value

Fair value means a reasonable estimate of what an asset, company, or investment should be worth. In simple terms, fair value is a price that seems reasonable based on available information. Fair value is important because investors use it to decide whether the current market price is attractive, expensive, or reasonable. It can be based on earnings, assets, cash flows, comparable companies, or market conditions. For example, if a stock trades near an analyst’s estimate of fair value, the analyst may say the stock is fairly valued. Fair value is not always the same as market price. Market price is what investors are currently paying, while fair value is an estimate.