Intrinsic Value — Smart Financial Analysis
Estimate fair value of a stock using DCF and Graham models. Compare Graham IV vs DCF IV vs current price.
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The estimated true worth of a stock based on fundamentals, independent of market price. IV = EPS × (8.5 + 2g) × (4.4/Y) where EPS is earnings per share, g is 5-year growth rate, Y is AAA corporate bond yield. Typically 8-12% for stocks. It's an estimate with a margin of safety.
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Why: The estimated true worth of a stock based on fundamentals, independent of market price. Warren Buffett defines it as the discounted value of all future cash flows.
How: Enter Current EPS ($), Earnings Growth Rate (%), Discount Rate (%) to get instant results. Try the preset examples to see how different scenarios affect the outcome, then adjust to match your situation.
Run the calculator when you are ready.
📋 Quick Examples — Click to Load
📊 Graham IV vs DCF IV vs Current Price
Comparison of valuation methods
📈 Projected Discounted Cash Flows
FCF and PV over projection period
🍩 DCF Value Split
PV of cash flows vs terminal value
📉 Margin of Safety by Method
Graham vs DCF margin of safety
For educational purposes only — not financial advice. Consult a qualified advisor before making decisions.
💡 Money Facts
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Intrinsic value estimation is the cornerstone of value investing, pioneered by Benjamin Graham and popularized by Warren Buffett. The concept is simple: every stock has a true worth based on fundamentals. When market price falls below intrinsic value, it represents a buying opportunity. Buffett has said that intrinsic value is the only logical way to evaluate the attractiveness of investments.
Sources: SEC EDGAR, Federal Reserve FRED, Morningstar, The Intelligent Investor (Benjamin Graham).
Key Takeaways
- • Intrinsic value = estimated true worth based on fundamentals, not market price
- • Graham Formula: IV = EPS × (8.5 + 2g) × (4.4/Y) — quick earnings-based estimate
- • DCF = sum of discounted future cash flows + terminal value — more detailed
- • Margin of safety = (IV - Price) / IV — buy when 25-50% below IV
Did You Know?
How Does Intrinsic Value Work?
Graham Formula
IV = EPS × (8.5 + 2g) × (4.4/Y). EPS is earnings per share, g is growth rate (%), Y is AAA bond yield (%). The 8.5 is Graham's base P/E; 2g adds growth premium; 4.4/Y adjusts for interest rates.
DCF Model
Project free cash flows for N years, discount each to present value, add terminal value (perpetuity growth model). Total = intrinsic value. Sensitive to growth and discount rate assumptions.
Margin of Safety
MOS = (Intrinsic Value - Market Price) / Intrinsic Value × 100%. Positive MOS means undervalued. Buffett suggests 25-50% MOS to absorb estimation errors.
Expert Tips
Graham vs DCF Comparison
| Aspect | Graham Formula | DCF Model |
|---|---|---|
| Inputs | EPS, growth, AAA yield | FCF, growth, discount rate, years |
| Best for | Quick screen, value stocks | Detailed analysis, cash flow businesses |
| Limitations | Ignores FCF, intangibles | Sensitive to assumptions |
Frequently Asked Questions
What is intrinsic value?
The estimated true worth of a stock based on fundamentals, independent of market price. Warren Buffett defines it as the discounted value of all future cash flows.
How is the Graham Number calculated?
IV = EPS × (8.5 + 2g) × (4.4/Y) where EPS is earnings per share, g is 5-year growth rate, Y is AAA corporate bond yield.
What is the DCF model?
Discounted Cash Flow projects future cash flows and discounts them to present value using a required rate of return, then adds terminal value.
What discount rate should I use?
Typically 8-12% for stocks. Use WACC for companies, or risk-free rate + equity risk premium. Higher risk = higher discount rate.
How accurate is intrinsic value?
It's an estimate with a margin of safety. Buffett suggests buying at 25-50% below intrinsic value to account for estimation errors.
What is margin of safety?
The difference between intrinsic value and market price. A 30% margin means buying a stock at 70% of estimated fair value for downside protection.
Key Statistics
Official Data Sources
⚠️ Disclaimer: This calculator is for educational purposes only. Intrinsic value estimates are subjective and depend on assumptions. DCF and Graham models have significant limitations. Not financial advice. Consult a qualified advisor for investment decisions.
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