The intrinsic value of an asset is a measure of its worth. Rather than utilizing the asset’s actual trading market price, this metric is calculated using an objective formula or a complicated financial model. This word is used in financial analysis to describe the process of determining a company’s fundamental worth and cash flow as closely as feasible. It is the difference between the strike price of an option and the current price of the underlying asset in options pricing. Although there is no uniform standard for assessing a company’s intrinsic worth, financial analysts develop valuation models based on qualitative, quantitative, and perceptual elements.
Intrinsic value refers to the true or real value of the company. If you think it sounds vague you’re right, it is not a precise concept. How much is worth is a difficult task and there is not one answer.
In layman’s language, Intrinsic value of a stock is the ideal price of a stock at a particular point of time considering its profitability, debt, sales, future prospect, etc. If the actual price is less than the intrinsic value, long-term investors purchase the stock. If the actual price is more than the intrinsic value, it is a sell signal.