Glossary
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Intrinsic Value
« Back to Glossary IndexIntrinsic Value refers to the true, inherent worth of an asset, investment, or business, based on its fundamental characteristics and underlying factors. It is a concept often used in financial analysis and investment to determine whether an asset is overvalued or undervalued relative to its fundamental attributes. For business valuations, intrinsic value is typically assessed through a thorough analysis of a company’s financial statements, operational performance, growth prospects, industry conditions, and other relevant factors. Unlike market price, which is determined by the supply and demand in the market and may fluctuate based on investor sentiment, intrinsic value aims to represent the underlying, intrinsic worth of the business. Several methods and models are used to estimate intrinsic value in business valuations, including Discounted Cash Flow (DCF) Analysis, Comparable Company Analysis (CCA), Comparable Transaction Analysis (CTA) and Asset-Based Valuation. It’s important to note that different analysts or investors may use different methods to assess intrinsic value, and there is often a degree of subjectivity involved. Intrinsic value is a theoretical concept, and the actual market price may deviate from it due to various factors such as market sentiment, macroeconomic conditions, and investor behavior. The goal of estimating intrinsic value is to identify investment opportunities where the market price is significantly different from the calculated intrinsic value. If the intrinsic value is higher than the market price, the asset may be considered undervalued, presenting a potential buying opportunity. Conversely, if the intrinsic value is lower than the market price, the asset may be considered overvalued.
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