Essay: Intrinsic Value Estimation

Sample Essay

The market value of a firm is the price of the stock trading in the market; if this price represents all relevant information for the shareholders then it would be the intrinsic value per share. The market value does not include and reflect all the information related to the company such as strategic information related to the company which is also not revealed in the financial statements.

The intrinsic value per share would be an actual reflection of the information relevant to shareholders in making decisions. There are numerous methods to calculate the intrinsic value per share of a firm and the method used here follows the discounted cash flow technique. The present values of the expected free cash flows have been calculated by applying a discounting factor of 4 percent. The discount rate has been taken as 4 percent as it is close to the required rate of return on equity of the company. The present values of the cash flows are added to arrive at the intrinsic value of the firm which is $78,027 million.  The book value of debt is $34,549 million for 2009 which is deducted from the intrinsic value of the firm to achieve the intrinsic value of equity which is $43,478 million. The common shares outstanding for the firm were 3,925 in 2009 and we divide the intrinsic value of equity by the number of common shares outstanding to find out the intrinsic value per share which is $11 per share.

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