Valuation
Intrinsic value
What an asset is actually worth based on the cash it will produce, regardless of its market price.
How it works
Intrinsic value is an estimate, not a fact, and reasonable people arrive at different figures. The discipline is in being explicit about the assumptions rather than in the precision of the answer.
Its purpose is to give you something to compare the price to, so that a falling price becomes information rather than instruction.
Related terms
- Discounted cash flowValuing a business by estimating its future cash flows and converting them to today’s money.
- Margin of safetyThe gap between what you pay and what you think something is worth, sized to absorb being wrong.
- Value investingBuying assets for less than an estimate of their intrinsic worth, with a margin of safety.
- Mr MarketA parable describing the market as a moody business partner who quotes a different price every day.
Mentioned in
More in Valuation
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.