Intrinsic value is a core metric used by value investors to analyze a company. The idea is that it is best to invest in companies that have a higher true value than the one being assigned to it by the market. Intrinsic value is a type of fundamental analysis. Tangible and intangible factors are considered when setting the value, including financial statements, market analysis, and the company’s business plan.
Some analysts utilize discounted cash flow analysis to include future earnings in the calculation, while others look purely at the current liquidation value or book value as shown on the company’s most recent balance sheet. Further, difficulty arises from the fact that the balance sheet itself since it is an internally produced company document and may not be a completely accurate representation of assets and liabilities.
Market value is the company’s value calculated from its current stock price and rarely reflects the actual current value of a company. Market value is, instead, almost more of a measure of public sentiment about a company. The reason for this is that the market value reflects supply and demand in the investing market, how eager (or not) investors are to participate in the company’s future. Another difficult factor in determining market value is how to value illiquid assets such as real estate and business lines.