How to Calculate Intrinsic Value of a Company?

Calculate Intrinsic Value of a Company: Intrinsic value is the calculated value of a company. It is the product or currency that is determined via fundamental analysis. An intrinsic value of a company can come from both tangible and intangible assets. It is also referred to as a real value. An intrinsic value of a company and the current market value may not be equal. It depends on the price an investor (rational) pays for a particular investment with its risk level.

A certainty factor is multiplied or assigned to each cash flow against the entire NPV – net present value. An investment is discounted with this method. The discount rate is equal to the yield rate.

Take, for instance: a high-growth company with cash with a probability factor of 50% assigned. The same discount rate can be utilized as the risk related to this high-growth company is already factored with the probability.

The three major of valuing a hospitality company is:

Discounted cash flow – is the most used valuation method in determining the intrinsic value. The company’s future cash flows are forecast and discounted to the company’s current value – WACC (Weighted Average Cost of Capital).

Comparable company analysis – also called peer group analysis. Here, similar companies are compared by studying P/E and other trading multiples. The intrinsic value of the target company is provided based on what other similar companies are worth.

Precedent transactions – it is related to the comparable analysis where similar companies that are sold recently are used to compare the company’s value that is discussed.