Intrinsic value

Intrinsic value is an estimate of a business’s worth based on the cash it can generate over time, usually discounted to the present. It differs from the price at which its shares trade.

Discounted cash flow: A valuation method that estimates an asset’s value by discounting its expected future cash flows to the present. This is the standard framework for turning projected business cash flows into intrinsic value.
Revenue forecasting: The estimation of a business’s future sales from evidence about its markets, customers, and operations. Revenue assumptions set the starting point for projecting future cash generation.
Market price: The price at which an asset is currently bought and sold in a market. A share’s traded price can differ from an estimate of the underlying business’s worth.
Margin of safety: The gap between an asset’s estimated value and its purchase price, intended to absorb estimation error. Investors use this gap to account for uncertainty in intrinsic-value estimates.
Free cash flow: Cash a business generates after operating costs and capital investment, available to its capital providers. It is a common measure of the cash available to support a business’s estimated value.
Operating margin: Operating income expressed as a proportion of revenue. It links projected sales to operating profit before financing and taxes.
Relative valuation: A valuation approach that estimates worth by comparing an asset with similar assets or companies. Unlike intrinsic valuation, it anchors estimates in market prices of comparable businesses.
Value investing: An investment approach that seeks assets priced below estimates of their underlying worth. Intrinsic-value estimates are central to deciding whether a security appears undervalued.
Time value of money: The principle that money available now is worth more than the same amount received later. Discounting future cash flows rests on this principle.
Capital expenditure: Spending on long-lived assets used to operate or expand a business. Investment needs must be deducted when estimating cash available to investors.

Linked from 17 pages