What is Intrinsic Value and why is it so high or low for a valuation?
We use the discounted cash flow to the firm (DCFF) method of valuation when we value a stock. The intrinsic value is the present value of the future expected cash flows related to a share of stock. If all of the underlying assumptions are correct, the intrinsic value should be what the stock should sell for today. The two inputs that have the greatest effect on intrinsic value are the growth rate of the company’s sales and cash flows, and the company’s net operating profit margin (NOPM). For growth rates, we use analyst expectations. The lookup process of the online valuation service calculates NOPMs, Investment Rate, Depreciation Rate, and Working Capital Rate based on historical data, comprised of the most recent balance sheet, cash flow statement and income statement data for the company. This data may be higher or lower that expected future levels for the company. Stock values are based on expectations of the future, not so much as what happened in the past. So the company’s intrin
