Intrinsic Value Definition – What is Intrinsic Value? | CFI

intrinsic value

The worth of a [financial instrument] or asset is referred to as intrinsic value. Intrinsic value is also sometimes referred to as the equilibrium price.

 

It is in the best interest of a trader to know the intrinsic value of an instrument so that they can assess whether it is currently overvalued or undervalued by the market. This helps the trader decide upon their possible [entry] and [exit] points and strategies.

 

There is no set recognised formula for calculating the intrinsic value of an asset. Analysts and traders will use a mix of qualitative, quantitative, and perceptual factors on which to build a model to arrive at the intrinsic value. This process is commonly referred to as [fundamental analysis]. Some analysts or traders may apply more weight to qualitative measures whilst others may favour a more quantitative approach.

 

Three key techniques that are used to determine intrinsic value are asset-based valuation, discounted cash flow analysis, and analysis based on a financial metric. Discounted cash flow analysis, or DCF, is the most commonly used measurement method.

 

Key takeaways:

 

  • Intrinsic value reflects the worth or value of a financial instrument or asset
  • Intrinsic value can help traders buy or sell instruments that may currently be undervalued or overvalued in the marketplace
  • There is no set formula used to arrive at the intrinsic value of an asset and analysts and traders will use various differently weighted methods to arrive at their own specific value
  • Qualitative, quantitative, and perceptual factors will be taken into account when determining an asset’s intrinsic value in a process commonly referred to as fundamental analysis
Credit Financier Invest (Mauritius) Ltd is an award winning global financial markets provider with over 23 years of experience and regulated entities in several jurisdictions, focused on offering impeccable execution and trading conditions including very low spreads, professional services, dedicated support and powerful tools.
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Important Disclaimer:


We would like to remind that while we endeavour to provide best possible services, CFI provides execution only services and any information, reports, opinions, commentary or other materials he receives from CFI directly or from its employees or through any analytical tools provided to him or third party research provided to him from the Company shall not be deemed as investment advice and it cannot be relied upon to make investment decisions. The Client commits to make his own research and from external sources as well to make any investment. The Client accepts that CFI will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. The contents of any report provided should not be construed as an express or implied promise, as a guarantee or implication that clients will profit from the strategies herein, or as a guarantee that losses in connection therewith can, or will be limited.


Forex and CFDs are leveraged products that incur a high level of risk and a small adverse market movement may expose the client to lose the entire invested capital. The vast majority of retail client accounts lose money when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. The possibility exists that you could sustain a loss in excess of your deposited funds even if a stop loss is used and therefore, you should not speculate with capital that you cannot afford to lose and be aware of trading risks. Credit Financier Invest (Mauritius) Ltd provides general information that does not take into account your objectives, financial situation or needs. The content of this website must not be interpreted as personal advice. Please ensure that you understand the risks involved and seek independent advice if necessary.

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