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Imputed value is the worth or value of a given asset that is not recorded or documented in existing historical records, although that value is considered to be inherent in the asset. Because the asset is believed to have some type of implicit value, the worth can be assessed and the data used in creating projections of future financial gains or losses involving that asset. Imputed value does not necessarily have to be equal to the market value of the asset, although this may be the case.
One of the easiest ways to understand imputed value is to look a situations in which investors or business owners make projections on future earnings from a given asset. Taking into account all relevant and predictable factors that have to do with past performance as well as market indicators and potential future events, the imputed value of the asset is projected for a given time period. For example, an investor may look at the history of a particular stock, evaluate current and future factors that could cause the stock to increase or decrease in value, and arrive at a prediction of the imputed value six months from today.
While the creation of an imputed value lacks the firm documentation of current or past value, the device is a very useful tool when it comes to planning for the future. Assuming that the data used in calculating the imputed value was reliable and that all likely factors and events are taken into account, projecting this type of future potential value makes it possible to prepare for any upward or downwards shifts that are likely to occur. For businesses, this may mean increasing the production of one product while cutting back on production of other products. Investors may look at all relevant factors, determine the likely or imputed value of a given investment at six months, and determine if would be in his or her best interests to sell the investment at the three month mark.
For investors, accurately calculating an imputed value can mean the difference between an investment account and portfolio that continues to increase in value or one that either languishes or shrinks over time. While not an exact science, the ability to responsibly project future worth based on the verifiable information on current value is absolutely necessary if financial security is to be achieved in the future.
Projecting an imputed value can also make it possible to earn long-range returns. Real estate is often a good example of this application of imputed value. When an investor notes that municipal growth appears to be concentrated on one end of town, he or she may decide to purchase property and land that seems to be directly in the path of that slow but steady expansion. Should the city or town continue to grow in that direction, the investor will eventually be able to sell the property for much more than the original purchase price. By taking into account the movement of the growth and the current pricing on land recently acquired for the expansion, it is possible to determine the imputed or implied value of the land once it is needed for expansion five to ten years down the road.
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