The application of real options theory in the value of business

A business might want to perform a valuation on itself for several reasons. During years the traditional methods have been the more used ones in the financial field. These methods, heavily support in the company's accounting, don't reflect the potential value that many inner investments (also called options) of the company can put on the table. In order to face this situation, the financial world has taken tools from its other fields; adapting the methods of different areas of the science. The way financial options are calculated is based on the risk and uncertainty of the underlying option; and how this "volatility" can be seemed as a value enhancer. Real Option Valuation (ROD) is one of the most innovative techniques currently available for investors and managers. Its application of the Financial Option Methodology, and is approach of the business as a constant investment project, is one of its main contributions to the Company Valuation methods. Businesses with low Net Present Value (NBD); or even with a negative valuation, can be taken as a possible cash generator, taking into account their strengths and opportunities in the market.