Saturday, September 09, 2006

Intrinsic Value

Intrinsic value is an all-important concept that offers the only logical approach to evaluating the relative attractiveness of a stock, bond or business - all of which are investments. It can be defined simply - the discounted value of all the cash that can be taken out of a business during its remaining life.

The calculation of an intrinsic value, though is not simple, it must be taken as an estimate rather than a precise figure, and it is an estimate that must be changed if the interest rate moves or the future forecast of cash flows are revised.

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