Intrinsic Value
Intrinsic value is the true underlying worth of an asset based on fundamental analysis of future cash flows, independent of current market price.
Concept map
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Definition
Intrinsic value is the true underlying worth of an asset based on fundamental analysis of future cash flows, independent of current market price.
Use case
Used in valuation workflows, analysis, and technical interviews.
Judgment check
Useful only when the assumptions and inputs behind the metric are understood.
Deep dive
How to think about Intrinsic Value
Intrinsic value is subjective — different analysts produce different estimates based on growth assumptions, discount rates, and terminal values. Value investors buy when market price < intrinsic value; sell or short when market price > intrinsic value. DCF is the primary intrinsic value methodology.
Example: Berkshire Hathaway's intrinsic value is estimated by analysts using sum-of-parts DCF: insurance operations, equity portfolio, operating subsidiaries. If calculated at $500B market cap equivalent but stock trades at $400B, Berkshire trades at 20% discount to intrinsic value.