How do I determine the internal value of the shares?

The internal value of the shares is a measure of how many specific shares are worth what their market price can be. This is an important concept for investors because it can allow them to identify contracts on the market and take advantage of the benefits accordingly. In fact, the internal value of shares can be measured in many different ways and often depends on the individual strategy the investor prefers. Most methods include metrics such as a share in the share, and also consider the expected future performance, while at the same time, including the concept of safety margin, which is the amount of screening that the investor needs between the internal value and the market price before purchasing shares. It can provide a good reading about the current situation of a basic company or business, but may not take into account its potential in the future. For the TD, the investors are trying to think of ways to determine the internal value of the shares, giving an idea of ​​how much it costs.

In one simple way of determining the internal value of the shares is the use of profit per share and measurement against the discount rate. The discount rate would be a percentage rate of revenue for certain investment, such as a government bond. For example, shares earn $ 3 (USD) per share and are measured compared to the discount rate of a government bond, which brings 5 ​​% return. Distribution of 0.05 into $ 3 is reached an internal value of 60 USD per share.

6 For example, if the above -mentioned example has the current price of $ 45, then it would be a contract. The use of the expected profit per share in future years can give the investor an idea of ​​the shares potential.

Since no method for calculating the internal value of the shares is not entirely accurate throughout the time due to intangible factors, investors often hold on the edge of safety when using the internal value. This represents the percentage difference between the internal value and the market price that the investor prefersEd before he ascends to his calculations. For example, an investor who favors a 50 %safety margin focuses on stocks that decide to have its own worth $ 50 per share. Fifty percent of $ 50 is $ 25, which means that the investor prefers the market price of shares to be $ 25 per share or lower before purchasing.