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Table of Contents.What is an Intrinsic Value Formula?The formula for Intrinsic value basically represents the net present value of all the of a company during the entire course of its existence. It is the reflection of the actual worth of the business underlying the stock i.e.
The amount of money that can be received if the whole business and all of its assets are sold off today. Step 3: Now, calculate the PV of all the FCF by discounting them using the discount rate.Step 4: Now, add up the PV of all the FCF calculated in step 3.Step 5: Next, the terminal value is computed by multiplying the FCFE of the last projected year by a factor in the range of 10 to 20. The beyond the projected period until the business is shut down.Terminal value = FCFE n. FactorStep 6: Now, to arrive at the value for the entire business, add up the value of step 4 and the discounted value of step 5 along with any.Step 7: Finally, the intrinsic value per share can be derived by dividing the value in step 6 by the number of shares outstanding of the company. Example of Intrinsic Value Formula (with Excel Template). You can download this Intrinsic Value Formula Excel Template here –Let us take an example of a company XYZ Limited which is currently trading in the stock market at $40 per share with 60 million shares outstanding.
An analyst intends to predict the intrinsic value of the stock based on the available market information. The prevailing required rate of return expected by the investors in the market is 5%. On the other hand, the free cash flow of the company is expected to grow at 8%.The following financial estimates are available for CY19 based on which the projections have to be made:So, from the above-given data, we will first calculate the FCFE for CY19.FCFE CY19 (in millions) = Net income + Depreciation & Amortisation – Increase in Working Capital – Increase in Capital Expenditure – Debt Repayment on existing debt + Fresh Debt raised. FCFE CY19 (in millions) = $200.00 + $15.00 – $20.00 – $150.00 – $50.00 + $100.00.
Intrinsic Value Calculator Excel Spreadsheet
= $95.00Now, using this FCFE of CY19 and FCFE growth rate we will calculate the Projected FCFE for CY20 TO CY23.Projected FCFE of CY20. Projected FCFE CY20 = $95.00 Mn. (1 + 8%) = $102.60 MnProjected FCFE of CY21. Projected FCFE CY21 = $95.00 Mn. (1 + 8%) 2 = $110.81 MnProjected FCFE of CY22. Projected FCFE CY22 = $95.00 Mn.
(1 + 8%) 3 = $119.67 MnProjected FCFE of CY23. Projected FCFE CY23 = $95.00 Mn. (1 + 8%) 4 = $129.25 MnNow we will calculate the Terminal value. = FCFE CY23. (1 / ). = $129.25 Mn.
(1 / 5%). = $2,584.93 MnTherefore, the calculation of Intrinsic value for the company will be as follows –Calculation of Intrinsic Value for the Company. Value of the company = $2,504.34 MnAfter this, we will do the calculation of Intrinsic value per share which is as follows –Calculation of Intrinsic value per share. Intrinsic value formula = Value of the company / No.
Of outstanding shares. = $2,504.34 Mn / 60 Mn. = $41.74Therefore, the stock is trading below its and as such, it is advisable to purchase the stock at present as it is likely to increase in the future to attain the fair value.
Definition Intrinsic Value Options
Relevance and Use of Intrinsic Value FormulaThe value investors build wealth by purchasing fundamentally strong stocks at a price way below their fair value. The idea behind the formula of intrinsic value is that in the short term the market usually delivers irrational prices, but in the long run, the market correction will happen such that the stock price on an average will return to the fair value.
Recommended ArticlesThis has been a guide to what is Intrinsic Value Formula. Here we discuss how to calculate Intrinsic Value of Business and Stock using practical example along with downloadable excel templates. You may learn more about Valuations from the following articles –.