Intrinsic Value
The value of a business justified by the cash it can be expected to produce over its life, discounted to today.
Formula
Intrinsic Value = Sum of Future Free Cash Flows discounted at the required rate of return
Unit
₹
In depth
Intrinsic value is an estimate, not a fact — two competent analysts with the same accounts will reach different numbers because they hold different views about the future. It is emphatically not book value, which records historical cost, nor market price, which records current opinion. The gap between price and intrinsic value is where investment returns come from, and the margin of safety is the buffer against the estimate being wrong. Because the calculation compounds assumptions, a precise-looking figure carries false authority; the honest output is a range with the key sensitivities stated.
Worked example
A business expected to generate ₹100 crore of free cash flow growing at 5%, discounted at 12%, is worth roughly 100 / (0.12 - 0.05) = ₹1,429 crore. Change the discount rate to 14% and it becomes 100 / 0.09 = ₹1,111 crore — a 22% swing from one assumption.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Intrinsic Value” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.