Investing term
What is Intrinsic value?
What a business is worth based on the cash it can produce, independent of today's market price.
Intrinsic value is what a business is genuinely worth based on the cash it can generate over its life, independent of today's market price. It's the anchor of value investing: an estimate of a company's true worth, against which the fluctuating market price can be judged cheap or expensive.
The crucial distinction is between value and price. The market price reflects the crowd's current mood and can swing far above or below what a business is actually worth; intrinsic value is the calmer estimate of that underlying worth, derived from the company's future cash flows and prospects. Investors estimate it to find gaps — buying when price sits well below intrinsic value, avoiding stocks trading well above it. It can't be calculated precisely — it depends on assumptions about the future — so it's best thought of as a reasonable range, used with a margin of safety rather than as a single exact figure.
Intrinsic value is what a business is worth from the cash it generates — the anchor value investors judge the fluctuating market price against. It's an estimate and a range, not a precise figure.
For example
You estimate a company's intrinsic value at around $60 a share based on its future cash flows; the market, gloomy that week, prices it at $45 — a gap between value and price.
Learn it by doing
That's Intrinsic value in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 15, Valuation for Investors).
Try the free lesson →Why it matters to you
Intrinsic value matters because it reframes investing from guessing where prices will go to estimating what businesses are worth — the foundation of value investing. Holding an independent estimate of worth lets you treat market swings as opportunities (buying below value) rather than signals to follow, and it's the reference point a margin of safety is measured against. Its power isn't precision but perspective: a rough sense of value keeps you anchored when prices get emotional.
⚠ Treating an estimate as an exact figure
Intrinsic value depends on assumptions about the future, so it can't be pinned down precisely — it's a range, not a single number. Treating your estimate as exact truth breeds false confidence, especially since it's easy to tune the assumptions toward the answer you want. Use intrinsic value as a reasonable range and pair it with a margin of safety, rather than trusting a precise figure.