Understanding Appreciation & Its different forms

Appreciation refers to an investment's increase in value over a period of time. This value increase is usually as a result of various factors and can be measured by several meters, such as amount, and increase rate amongst others.

Appreciation refers to an investment's increase in value over a period of time. This value increase is usually as a result of various factors and can be measured by several meters, such as amount, and increase rate amongst others.

It is no uncommon for traders, investors, and analysts alike to constantly monitor a company’s investments for sudden changes, which occur quite frequently.

These changes could be positive or negative. The negative changes are referred to as depreciations, which are downward adjustments in an investment’s value over a period of time. The positive changes, on the other hand are what we call appreciations.

Appreciation is said to be of five major types. These are explained below;

Capital Appreciation

This has to do with an increase in the value of a particular financial asset, especially stocks. Stockholders of any particular enterprise always witness an increase in the value of their shares whenever the enterprise increases in its overall value.

Note here that capital appreciation differs from capital gains, which have to do with the net profit earned from selling an appreciated investment.

Asset Appreciation

This is perhaps the most common type of appreciation. It refers to an increase in an asset's value over time. There are various types of assets which reliably increase in value.

Some of these reliable assets include; real estate, precious stones, government bonds, and precious metals. They are usually purchased with the understanding that they will definitely increase in value as long as time, refinement, or restoration is at work.

Trademark Appreciation

A brand name, product line, or any trademarked IP, may witness either gradual increases or sudden spikes in value. This happens with the brand's increased popularity, especially during market campaigns.

Such changes are to be closely monitored, in order to establish a structure for future advertisements and to have an accurate value estimate.

Currency Appreciation

Currency appreciation refers to an increase in the value of a country’s economic value. Countries usually experience increases and decreases in their economic value, depending on their economic strengths.

Currency appreciation does not involve a rigid comparison with one meter of measurement, rather it is an inmate web of relative values, as the rate at which changes occur between two countries might differ greatly from another pair of countries.

Skill Appreciation

Skills are another form of investments whose values increase or decrease per to. In certain times, there are some skills which would be highly demanded, while in other times, those same skills would be hardly needed.

It is crucial that employers are equipped with the right tools to measure the financial values of their employees' skills, so as to know which employees are in need of advanced training, and which ones need to be recognized.

In all these types of appreciation, one common factor remains— increase in value. Appreciation is highly important in finance and in the corporate world, generally.

This is why it is highly important that investments are closely tracked, so the owners know when there is an appreciation and so they know the appropriate steps to take. This is also where adequate fundamental analysis comes in.

Written by Lawretta Egba