Intrinsic Value

Parent term
Intrinsic value is a measure of what an asset is worth, referring to an investor’s perception of the inherent value of an asset, such as a company, stock, option, or real estate. Taking into consideration an objective calculation or complex financial model, rather than using the currently trading market price of that asset, an entity’s intrinsic value is also the present value of all expected future cash flows, discounted at the appropriate discount rate. Internal factors like a firm's products, its management, and the strength of its brands in the marketplace determine intrinsic value. It is essential for investors to know the intrinsic value to determine when to buy stocks and other investments at a discounted amount, and the amount an investor is willing to pay for an investment, given its level of risk.

  • Can be hard to define - since if we wish to quantify it, we end up excluding what is unquantifiable
  • Problems with Using Discounted Cashflow Analysis To Quantify
    • Future cashflows are all estimates
    • The discount rate is an assumption