What Is the Intrinsic Value Formula?
The intrinsic value of an enterprise is the value of the enterprise itself. It is an objective existence. It is determined by the intrinsic quality of the enterprise. The intrinsic value of the enterprise is an important factor that determines the market value of the enterprise. On the one hand, the intrinsic value of an enterprise restricts and affects the market value; on the other hand, the market value also has an impact on the intrinsic value. [1]
Intrinsic Value
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- Chinese name
- Intrinsic Value
- Foreign name
- Intrinsic Value
- Also known as
- Non-use value
- Nature
- Assess the relative attractiveness of investments and businesses
- The intrinsic value of an enterprise is the value of the enterprise itself. It is an objective existence. It is determined by the intrinsic quality of the enterprise. The intrinsic value of the enterprise is an important factor that determines the market value of the enterprise. On the one hand, the intrinsic value of an enterprise restricts and affects the market value; on the other hand, the market value also has an impact on the intrinsic value. [1]
- Intrinsic Value is also called: Non-Use Value (NUV) is defined as the discounted value of cash that an enterprise can generate in the rest of its life. Intrinsic value is a very important concept. It provides the only logical means for assessing the relative attractiveness of investments and enterprises.
- However, the calculation of intrinsic value is not so simple. As we have defined, the intrinsic value is an estimated value, not an exact value, and it is also an estimated value that must be changed when interest rates change or the forecast correction of future cash flows.
- This concept has two implications.
- In terms of financial analysis, it refers to the valuation value obtained by entering data into some valuation theory formula or model, and the result should be consistent with the current market price.
- In terms of options, it refers to the difference between the option contract delivery price or contract pricing and the corresponding securities market price. For example: if the agreed price of a buy option is $ 53 per share and the market price of the stock is $ 55, then the option has an intrinsic value of $ 2: The market value of the corresponding stock is $ 53, and the intrinsic value of the option is $ 2. At the money option or out of the money option has no intrinsic value, and the real option has the intrinsic value.