The History of Company Valuation

The history of company valuation is more than a technical journey, it mirrors how our economies and markets evolved. Before the 18th century, businesses were valued mainly by their tangible assets like land, buildings, and inventory. Reputation mattered, but there were no structured methods.

With the rise of joint-stock companies and the first stock exchanges in Amsterdam and London, the concept of market capitalization was born, share price multiplied by shares outstanding. This was the first standardized way to value a company.

In the 19th century, industrial firms popularized book value, focusing on net assets, while goodwill started to appear in balance sheets. In the early 20th century, thinkers like Benjamin Graham and David Dodd revolutionized valuation with intrinsic value, the idea that a company's worth is based on its future income. Models such as the Dividend Discount Model provided scientific foundations for this approach.

From the 1960s through the 1980s, modern finance took center stage: the Discounted Cash Flow (DCF) model, the Capital Asset Pricing Model (CAPM), and valuation multiples like P/E ratios became standard practice. In the 1990s and early 2000s, real options theory and the dot-com boom pushed new valuation methods, some tied to fundamentals, others driven by hype such as user growth and website traffic.

After the 2008 financial crisis, fair value standards and risk-adjusted models took prominence, emphasizing transparency and comparability. Today, valuation increasingly incorporates intangibles, unit-economics and so forth, reflecting the fact that a company's value goes beyond its numbers.

In short, the story of valuation shows us that a company is not only worth what it owns, but also what it creates and represents for its stakeholders and society as a whole.