Economic valuation is an assessment tool that focuses on the overall financial and socioeconomic impact of a company or project, whereas financial valuation estimates the value of a company or an intangible asset using specific criteria, such as future revenues.
Key elements of economic valuation include:
- Value creation: this measures the net added value generated by the company or project, including job creation and increased tax revenues.
- Multiplier effects: this accounts for the indirect or induced impacts of economic activity resulting from expenditure and investment related to the project or company.
- Analysis of externalities: this assesses the social and environmental benefits, such as job creation or improved social conditions, that result from the economic activity.
- Assessment of social benefits: beyond direct economic impacts, it considers social and environmental benefits that contribute to collective well-being.
- Cost-benefit analysis: it compares the costs and benefits associated with the business or project to measure overall economic efficiency.
Economic valuation is also used to evaluate public investments, government policies, infrastructure projects, and other initiatives that significantly affect the economy and society. It offers a broader perspective than financial valuation by incorporating externalities and broader socioeconomic effects.