Intrinsic Value Calculator

What is Intrinsic Value?

Intrinsic value is the perceived or calculated true value of a company, stock, or asset based on fundamental analysis of its financial metrics, earnings, growth rate, and dividend capacity, independent of its current market trading price.

Valuation Models

1. Benjamin Graham Formula

Pioneered by Benjamin Graham, the father of value investing, this revised formula estimates a stock's fair value based on earnings per share and expected growth:

$$V = \text{EPS} \times (8.5 + 2g) \times \frac{4.4}{Y}$$

Where $\text{EPS}$ is earnings per share, $g$ is expected long-term earnings growth rate, $8.5$ is the baseline P/E for zero growth, $4.4$ is the benchmark yield, and $Y$ is the current AAA corporate bond yield.

2. Dividend Discount Model (Gordon Growth Model)

The Dividend Discount Model (DDM) calculates intrinsic value based on anticipated dividend payments discounted to their present value:

$$V = \frac{D_0 \times (1 + g)}{r - g}$$

Where $D_0$ is the current annual dividend per share, $g$ is the dividend growth rate, and $r$ is the investor's required rate of return.

Margin of Safety

Value investors buy stocks when the current market price is lower than the calculated intrinsic value. The difference between intrinsic value and market price is called the Margin of Safety, which protects investors from market downturns or calculation errors.

Related Valuation Tools

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• Net Present Value Calculator