A company's
intrinsic value, or underlying value, is closely tied to its prospects
for future success and increased earnings. For that reason, a
company's future as well as its current assets contribute
to the value of its stock.
You can calculate intrinsic value by figuring
the assets a company expects to receive in the future and subtracting
its long-term debt. These assets may include profits, the potential
for increased efficiency, and the proceeds from the sale of new
company stock. The potential for new shares affects a company's
intrinsic value because offering new shares allows the company
to raise more money.
Analysts looking at intrinsic value divide
a company's estimated future earnings by the number of its
existing shares to determine whether a stock's current price
is a bargain. This measure allows investors to make decisions
based on a company's future potential independent of short-term
enthusiasm or market hype.
