Intrinsic Value (finance) - Equity

Equity

See also: Valuation using discounted cash flows and John Burr Williams#Theory

In valuing equity, securities analysts may use fundamental analysis — as opposed to technical analysis — to estimate the intrinsic value of a company. Here the "intrinsic" characteristic considered is the expected cash flow production of the company in question. Intrinsic value is therefore defined to be the present value of all expected future net cash flows to the company; it is calculated via discounted cash flow valuation.

An alternative, though related approach, is to view intrinsic value as the value of a business' ongoing operations, as opposed to its accounting based book value, or break-up value. Warren Buffett is known for his ability to calculate the intrinsic value of a business, and then buy that business when its price is at a discount to its intrinsic value.