What Is Imputed Value?
Let me explain what imputed value means to you. Imputed value, which you might also hear called estimated imputation, is basically an assumed value we give to something when we don't know or can't get the real value. It's a logical or implicit value for an item or a set of data over time, where the true value hasn't been figured out yet.
Think of it as your best guess estimate to predict a bigger set of values or a whole series of data points. You can apply imputed values to things like the value of intangible assets a company owns, the opportunity cost tied to some event, or even figuring out the value of a historical item where we lack facts about its past value.
Key Takeaways
- Imputed value is a calculated estimate of value produced when a direct or explicit value is unavailable or impossible to obtain.
- Imputed values may be given to intangible assets held by a firm, such as the value of a patent or other piece of intellectual property.
- Because imputed values are only estimates or forecasts, they may be subject to error. One should heed imputed values with caution when evaluating a company's financial statements.
Understanding Imputed Value
You can use imputed values in all sorts of situations. For instance, they cover the opportunity cost from an event, intangible assets a firm holds, or the value of a historical item without available past value facts. Also, in time series data, you might need estimations to fill in missing figures for a complete set. As long as these imputed values are fair estimates, there's usually no problem with using them.
Imputed values even play a role in computing economic data like gross domestic product (GDP). To give a full picture of economic activity, GDP has to include some goods and services not traded in the market. Those parts are called imputations.
Examples include services from owner-occupied housing, free financial services, personal consumption expenditures (PCE), and how employer-provided health insurance is treated. These imputations basically approximate the price and quantity you'd get if those goods or services were actually traded in the market.
There's something similar called imputed cost. This is a cost you incur by using an asset instead of investing it or doing something else with it. It's an invisible cost, not directly incurred, unlike an explicit cost which you pay outright.
Example of Imputed Value
Here's an example to make this clear for you. Suppose XYZ company decides to invest in project A instead of project B. That choice comes with an opportunity cost. The actual dollar amount for that opportunity cost is an imputed value because you can't precisely measure it.
Another one: the value of a patent that ABC company holds is an imputed cost. You can estimate how much extra business or revenue comes from owning that patent and how it boosts the company's value, but you can't nail it down definitively in hard dollars.
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