Intrinsic Value Calculator

Guide to Using the Intrinsic Value Calculator

Step 1: Input Earnings Per Share (EPS)

The first step in using the Intrinsic Value Calculator is to enter the current Earnings Per Share (EPS) of the company. This figure represents the company’s profit allocated to each outstanding share of common stock. You can input the figure in the field provided. Ensure the EPS falls within the valid range of -1000 to 1000, and input it to two decimal places for accuracy.

Step 2: Input the Expected Annual Growth Rate

Next, estimate and input the Expected Annual Growth Rate (%). This rate reflects how much you expect the company’s earnings to grow annually. Enter a value between -100% and 100%, rounded to one decimal place. This parameter is crucial as it influences the future earnings projections and ultimately the intrinsic value calculation.

Step 3: Determine and Input the Required Rate of Return

In this step, input the Required Rate of Return (%). This is the discount rate and represents the return you expect from the investment. The valid input range is 0% to 100%, rounded to one decimal place. The discount rate is used to calculate the present value of future earnings.

Step 4: Input the Terminal P/E Ratio

Now, enter the Terminal P/E Ratio, which is the price-to-earnings ratio you expect at the end of the forecasted years. The allowable range for this ratio is 0 to 100, with a step of 0.1. This ratio helps in estimating the company’s value at the end of the specified period.

Step 5: Select Projection Years

Select the number of years for which you want to project the earnings in the Projection Years dropdown menu. You have the option to choose between 5, 10, or 15 years. The selection will influence how future earnings and the terminal value are calculated.

Step 6: Review the Calculation Results

• Present Value of Future Earnings: This is calculated based on the earnings per share and growth rate, discounted to present value. It indicates what future earnings are worth today.
• Terminal Value: This value reflects the estimated total worth of the company at the end of the projection period, considering the terminal P/E ratio.
• Total Intrinsic Value: Add the present value of future earnings and the terminal value to get the total intrinsic value of the company. This figure is a key metric for assessing investment viability.
• Margin of Safety (30%): This metric shows a safety margin by applying a 30% discount to the intrinsic value, indicating a conservative buy price.

After completing these steps, you will have a detailed calculation of a company’s intrinsic value, which you can use to make informed investment decisions.