Intrinsic Value Vs Book Value.

Hello Everyone.

I am not able to understand that :

What’s the Difference Between the BOOK VALUE and the INTRINSIC VALUE of a SECURITY…???

Would Welcome any answer.

Book value or book value per share is the net asset value (assets minus intangible assets and liabilities) of a company divided by the number of shares outstanding. This is an accounting value and does not always represent the true value of a company. Book value per share could be more or less than the true value of the shares. Intrinsic value represents the true value of a security. It is calculated by projecting future cash flows and discounting them by an appropriate discount rate to today’s value and dividing the result by the number of shares outstanding.

I wonder how you are going to master FRA, Econ and Ethics if you already need help on definitions.


BV = A-L = E You can divide by shares to get the BV per share.

Intrinisc Value is Based on a forcasted IS/BS then discounted at the WACC divided by weighted average shares.

MV/BV is one of my favorite comps.

As an example of the difference between book value and intrinsic value, suppose that a company buys a 5-year, semiannual pay, 6% coupon, €1,000 par bond for €900, and uses straight-line amortization of the discount.

One year later, interest rates have dropped considerably, and the market price of the bond is now €1,100.

  • The book value of the bond is €920: the original €900 purchase price, plus €20 (= €100 ÷ 5) amortization of the discount.
  • The intrinsic value is €1,100: the market price.

Intrinsic value in the value investing sense is not the market price. The intrinsic value is the value of a security derived from fundamental analysis. i.e. projecting out cash flows and discounting those cash flows at an appropriate discount rate. The intrinsic value compared to market price is then used to determine whether the security is overvalued or undervalued.

Good point.

I used a bond in my example for exactly that reason: the cash flows are discounted at (what we’ll assume is) an appropriate discount rate to arrive at the value (price). Of course, the market could be wrong about the appropriate discount rate. Markets are like that sometimes.

Graham and Dodd. Respect.