Intrinsic value is an estimate of what a company is worth measured from the inside — from the cash its operations can be expected to produce and hand to its owners — independent of what anyone is currently willing to pay for the shares. The market price is a fact; intrinsic value is an argument.
The idea rests on one claim: an asset is worth the money it will give you, discounted back to what that money is worth today. Everything else — the forecast, the discount rate, the horizon — is machinery for turning that claim into a number. Change an assumption and the number changes, which is a feature rather than a flaw: it makes the argument visible instead of hiding it inside a share price.
Every method below is this statement with a different answer to “which cash flow?” and “how far out?” — free cash flow in a discounted cash flow, dividends in a dividend discount model, earnings in the Graham formula.
Suppose a business is expected to hand its owners $10 a share every year for ever, and you require 10% a year for holding it. A perpetuity of that shape is worth:
Require 12% instead and the same $10 is worth about $83; require 8% and it is worth $125. One assumption, moved four percentage points, moves the answer by half. That sensitivity is the honest headline of every intrinsic-value estimate, not a footnote to it.
Treat the output as a range produced by assumptions you can name, never as a target price. The useful question is not “what is this worth?” but “what would have to be true for today’s price to be right?” — and the way to answer it is to move one assumption at a time and watch which one the answer actually depends on.
Compare methods rather than trusting one. Where a discounted cash flow, a dividend model and an earnings-based formula broadly agree, the estimate is resting on the business rather than on the arithmetic. Where they disagree wildly, the disagreement itself is the finding.
In the app, the Intrinsic Value tab on a company page runs four methods on one axis against the current price, with every assumption editable.
It matters most for a business whose future is at least arguable: stable demand, a record long enough to extrapolate from, and cash flows that are not entirely at the mercy of one commodity price or one product launch. It is also the only vocabulary in which a margin of safety means anything — you cannot discount a price against a value you never estimated.
The number is only as good as the forecast behind it, and forecasts of anything beyond a few years are weak. In a long-horizon model most of the value typically sits in the terminal value — a judgement about a year nobody can see. The method also says nothing aboutwhen the market might agree with you, which can be never, and it produces a confident-looking figure from inputs that are guesses. Precision is not accuracy.