Intrinsic value



Key Takeaways

  1. Intrinsic value and market value, both terms estimate the company’s performance and value.
  2. The intrinsic value measures a company’s real value without considering its market value.
  3. The market value is nothing but the current price of the company’s stock.
  4. Investors use intrinsic value to analyze the company’s performance.

Intrinsic value is the hypothetical value of a security which it should command if all the information about it is available to the markets. It is the true worth of the investment in that security or asset.

Intrinsic value meaning

Intrinsic value is the computed value of a currency, company’s stock, company and product through fundamental analysis. It generally gives the real value of an asset independent of its current value in the market. While computing the intrinsic value analysts consider both factors qualitative and quantitative. The qualitative factors include company’s performance, productivity, business management and market factors. The quantitative factors include financial statement and accounting data, through which a company’s intrinsic value is compared with its current value to assess whether company’ shares are overvalued or undervalued.

Intrinsic value and ways to find it is what powers active management in investing. It is assumed that not all information with an impact on the security is known. The fund managers try to come up with their estimates of the intrinsic value of the assets and buy or sell depending on how it compares to the market price.

Intrinsic value vs market value

Intrinsic value and market value, both terms estimate the company’s performance and value. The intrinsic value measures a company’s real value without considering its market value. The market value is nothing but the current price of the company’s stock. Investors use intrinsic value to analyze the company’s performance. The rationale behind this is to invest in a company which has greater value than value which is determined by the current market. If the current market value of the company is lower than the company’s intrinsic value, that means the company’s stocks are undervalued. If there is more demand for investment in the company, then it increases the company’s market value. If the company’s current value is higher than its intrinsic value, this means stocks of that particular company are overvalued.