Intrinsic Value Is What the Future Might Be Worth Today
All afternoon the stock sits at $80, while the spreadsheet you built over the weekend keeps insisting it's worth $104. The market set the first number; your assumptions set the second — and the second is intrinsic value.
Intrinsic value is an estimate of what an asset is really worth, based on the cash it can produce and the risk of waiting for it. No exchange publishes it — someone has to work it out.
The discounting idea
Money later is worth less than money now, so future cash gets discounted back to the present. The discount rate stands in for time, risk, and what the money could earn elsewhere.
Say an asset will pay $110 one year from now and you require a 10% return for the risk. Its present value is $100, because $100 growing at 10% becomes exactly $110.
From one payment to a whole business
A company isn't one payment — it's years of uncertain cash flows. Estimating its value means forecasting revenue growth, margins, reinvestment, and competition, then discounting all of it back.
Small assumption changes swing the answer hard. Nudge growth or the discount rate a point and $104 becomes $88 or $125, which is why a range is more honest than one confident figure.
Price vs. value
Market price is what buyers and sellers agree on today; intrinsic value is what your analysis says the asset should fetch. The whole craft of valuation lives in the gap between them.
When the estimate sits well above market value, value investors call the difference a margin of safety. It's the cushion that protects you when your assumptions turn out too rosy.
What it isn't
Intrinsic value isn't a grade for product quality or brand affection. A wonderful product can sit inside an overpriced stock, and a dull business can trade below a conservative estimate of its cash.
It doesn't hide inside shortcut multiples either, though ratios like the P/E ratio get used as quick proxies. A multiple compresses assumptions — it doesn't remove them.
The SEC's investing glossary covers the surrounding vocabulary.
Write down your assumptions before you fall for the number they produce.