The intrinsic value of a company, stock, currency, or product is the expected or computed worth ascertained via fundamental analysis. It comprises both concrete and abstract elements. Real value is another name for intrinsic value, which may or may not correspond to the current market value. Additionally, it is denoted as the cost at which a judicious investor is inclined to purchase an investment in light of its degree of risk.
Standard Formula
In general, the intrinsic or fundamental value of an investment asset or business is determined by discounting the present value of all anticipated future cash flows by a suitable rate.
Consequently, the most “standard” method resembles the formula for net present value:
Where the symbols have the usual meaning shown below –
- NPV = Net Present Value
- CFi = Net cash flow for the ith period (for the first cash flow, i = 0)
- r = interest rate
- n = number of periods
