Home » Blog » Trading » Trading Strategy » What is Intrinsic Value of Share? Download A Calculator

What is Intrinsic Value of Share? Download A Calculator

Intrinsic Value of Share

This article will not demonstrate how discounted cash flow (DCF) or discounted earnings per share (EPS) valuation works. We will not be going through DCF’s complex formulas nor explain the meaning and rationale behind the calculations. Here, we will learn what is intrinsic value of share and also download a calculator freely available.

Investopedia has covered well about the method which you can read about it here. Download the DCF spreadsheet from below of the post. The spreadsheet which you have downloaded is supposed to be “Plug and Play”. Enter the data, and voila… you get the intrinsic value of share. Let’s Get Started!

What is Intrinsic Value of Share?

We see that the price of a share goes up or down. But if we can calculate the real value of a stock that will be very helpful for the investors. In simple terms, the definition of intrinsic value of share is the discounted value that we can take out from a business during the rest of its life. So here we will check the current earnings of a company and we will try to figure out what can be the earning in the future, say next 10 or 20 years. We will then discount those future earnings as per our discount rate.

Suppose the future earnings per share is 5 rupees per share at a valuation of 50 rupees. So your fair value in 3 years is then 5 x 50 = 250 rupees. We can understand it is a buy if the stock price is below 250 and it is a sell if it is above 250. We need to find out what will be the earnings in the future to calculate the intrinsic value.

Some Common FAQ

What is intrinsic value of share with example?

The intrinsic value is the calculated future value of the stock using some mathematical formula. We used to predict its future earnings and try to discount it with our pre-determined discount rate to find this value. Suppose the market price of a stock is Rs. 200 and the value of its 190 strike price call option is 25. Then the intrinsic value of the call option is 200 – 190 = 10. So actually the option is trading Rs. 15 higher than its intrinsic value.

How do you calculate intrinsic value?

We can calculate this by dividing the total value of the company’s business by the total number of shares outstanding. In this post we are providing a calculator to calculate the intrinsic value.

How to use the spreadsheet to calculate the intrinsic value of share?

Once you opened the spreadsheet, you will see 2 tabs – Discounted EPS and Discounted Cash Flow. As a rule of thumb, growth companies usually have higher earnings growth while more established or blue-chips companies have more consistent cash flow growth.

You will need to decide whether the discounted EPS or CF is more suitable for use (based on the financial numbers) If the company’s earnings or cash flow is highly inconsistent, then this calculator is NOT applicable.

Below are some terms used in the spreadsheet which you will come across:

  • CAGR = Compounded Annual Growth Rate
  • FV = Future Value (Final Year EPS or Cash Flow)
  • PV = Present Value (First Year EPS or Cash Flow)
  • DF = Discount FactorDV = Discount Value

Calculate the Discounted EPS

Step 1:

1.1  You will need to enter the data into the orange boxes.

  • Current Year
  • Current EPS
  • EPS CAGR
  • Discount Factor
User Guide Modified 0

Step 2:

2.1  To help you get the EPS CAGR, there is a CAGR calculator on the right hand side of the spreadsheet.

2.2  For illustration purpose, I am using BreadTalk Group Ltd as an example. We will use BreadTalk last 5 years EPS as an indication of its earnings growth.

  1. 2008: 0.02760
  2. 2009: 0.03940
  3. 2010: 0.04002
  4. 2011: 0.04118
  5. 2012: 0.04263
  6. (data from shareinvestor.com)
  • Final Year EPS = 0.04263 (FV)
  • First Year EPS = 0.02760 (PV)
User Guide Modified 1

2.3    So,   enter the above two figures and   n=4   (2008-2012)   into the CAGR calculator.

2.4  You will find that the earnings grew by about 11.5% annually for the past 5 years.

2.5  So, we will assume the earnings will continue to grow at 11.5% over the next 10 years.

User Guide Modified 2

2.6  Then key in all the data as follows:
2.7  In Singapore’s context, you could use CPF’s 4% risk-free interest rate as the Discount Factor (DF).

Intrinsic Value of Share

2.8  If you enter all the data correctly, it will auto-calculate and will arrive at the intrinsic value of the stock at the bottom of the spreadsheet:
2.9  In this BreadTalk example, the intrisic value is at 0.638

Calculate the Discounted Cash Flow

Step 3:

3.1  Basically, it’s very similar to Discounted EPS model as well. Instead of using earnings, we are using cash flow of the company as an indication.

3.2  You will need to enter the following data into the orange boxes:

  1. Current Year
  2. Cash Flow
  3. Cash Flow Growth Rate
  4. Discount Factor
  5. Current Share Price
  6. No. Shares Outstanding

3.3  For illustration purpose, we are using Osim International Ltd as an example. We will use its last 4 years’ cash flow as an indication:

Net Cash Generated from Operating Activities:

  1. 2009: 65.2M
  2. 2010: 93.5M
  3. 2011: 99.5M
  4. 2012: 103.1M
  5. (data from shareinvestor.com)
  • Final Year Cash Flow = 103.1M
  • First Year Cash Flow = 65.2M
User Guide Modified 4

3.4  So, enter the above two figures and n=3 (Year 2009 to 2012) into CAGR calculator:
3.5  You will find that the cash flow grew by about 16.5% annually for the past 4 years. So, we will assume the earnings will continue to grow at 16.5% over the next 10 years.

User Guide Modified 5

3.6  Then key in all the data as follows:
3.7  In Singapore’s context, you could use CPF’s 4% risk-free interest rate as the Discount Factor (DF).

Intrinsic Value of Share

3.8  Lastly enter the no. of outstanding shares of 723.57M (data from shareinvestor.com)
3.9  If you enter all the data correctly, it will auto-calculate and will arrive at the intrinsic value of Osim’s stock at $2.80.

Now, download and use this calculator that calculates the intrinsic value of share free from below and use it. You may distribute this calculator to your friends and relatives, but don’t forget to refer them to our site.

Conclusion

The intrinsic value of share is typically helpful for an investor to identify whether it is good to invest in that share or not. We can calculate the intrinsic value and decide the fair value to invest in any stock. This is typically a fundamental analysis feature.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.