Intrinsic Value Calculator

We valuate Businesses - not stocks.


How do we calculate the intrinsic value of a stock?

- In order for a stock to have a positive intrinsic value, the company should have growing revenues, positive net incomes and positive cahsflows. Otherwise we wont be able to calculate its intrinsic value. According to this approach if a company is not profitable it doesnt have an intrincis value.

- If the company is profitable we calculate the margins between the revenues and the net incomes, and the margins between the net incomes and free cash flows.

- Next step is to forecast the revenues for the next 4 years, according to the growth rate we calculate beforhand.

- Once we have the 'future' revenues we then calculate the net profits and free cash flows according to the margins we calculates before.

- Then we need to calculate the terminal value to add it up to the sum of free cash flows using this formula: TV = (FCF x [1 + g]) / (WACC – g). The WACC figure we calcualte with this formula: WACC = [(E/V) x Re] + [(D/V) x Rd x (1 - Tc)]

- Once we have all the cashflows, current and futrue we are calculating the DCF using this formula: DCF Formula =CFt /( 1 +r)t.

- All we have left now to complete the calculation is to sum up the DCF and devide it by the shares outstanding. The number we get is the intrinsic value of a stock according to the value investing method.

This method is widly used among professional investors and wall street analyzers, such as Warren Buffet that learned that method from Benjemin grahm. Benjemin grahm plublished the book The Smart Investor that talks about this method.