Intrinsic valuation is the process to determine the intrinsic value of a stock by analyzing how much cash it will generate in the future and the annualized rate of return that investors require. We’ll start by learning about the concept of time value of money, which underpins every intrinsic valuation analysis. Then we’ll learn about how we would determine the annualized rate of return that investors should require on any investment. And finally, we’ll tie everything together and learn how to determine what all the future cash the company will give back to us is worth to us today given the annual return on investment we want to earn.
Key Takeaways:
- Time value of money
- Relationship between risk profile and required return
- Discounted Cash Flow (“DCF”) analysis