Intrinsic value (IV) refers to the ‘innate value’ of an equity which is ‘within’ in the equity itself. Intrinsic value can be calculated by totally the forecasted future income of the company and discounting it to the present value. Intrinsic value is used by value investors as a key comparitive indicator across groups, or, selections of equities.

Value investors that perform fundamental analysis look at both qualitative and quantitative factors to come to a determination about whether the business is currently out of favor with the market and is really worth much more than its current valuation.

Determining if a business is cheap or expensive compared to its IV becomes an even more important factor when determining IV. The IV may or may not be the same as the current market, or current trading, value of the equity. For example if the current IV is $17.50 for a stock but it is trading at $15, then it is trading at a discount to IV as the current value is less than what has been determined to be the true, or Intrinsic, value of the business.

The “intrinsic” characteristic considered is the expected cash flow of the stock in question. Intrinsic value is also defined as the present value of anticipate future income to the company after tax (the net cash flow). Value investors perform discounted cash flow analysis to determine this.

Value investing is generally considered to be more mathematically intensive than fundamental investing and charting investing as, to determine IV, value investors use a variety of weighted analytical formula(s) in order to estimate the intrinsic value of companies.