How to Calculate a Company's Intrinsic Value & EPS

by David Ingram, studioD

Intrinsic value refers to what a company is actually worth in monetary terms, regardless of what its stock price or earnings may be. Earnings per share (EPS) is a measure of earnings performance investors use to predict stock price movements. Both intrinsic value and EPS are useful to investors looking to gain insight into a company's true value. Investors can calculate these metrics on their own or rely on financial data published on the web to make more informed investment decisions.

Calculate the total value of a company's assets and financial holdings to determine the company's intrinsic value. Think of intrinsic value as the monetary value of all company assets that can be sold in the marketplace. This includes things like fully owned buildings and vehicles, inventory, equipment, technology and patents. Take the value of financial assets such as cash holdings, bonds and stocks into account, as well.

Take the company's goodwill valuation into account when determining intrinsic value. The goodwill line item represents the strength and reputation of a company's name and brands. While goodwill carries significant meaning when considering a company's future ability to thrive and grow, it says nothing about the actual intrinsic value of the company from a liquidation standpoint. If you have taken an intrinsic valuation directly from company reports, check to ensure that goodwill has not been added into the equation. If you are calculating intrinsic value on your own, consider the purpose of your investment before adding goodwill.

Divide the company's net income by its net shares outstanding. Take the net income figure from the company's most recent income statement, and find the information on the number of shares outstanding either in the company's most recent quarterly report or from your preferred online stock market news outlet.

Compare stock prices to EPS and intrinsic value to judge whether a stock is currently undervalued, overvalued or priced correctly. If a company's current stock price is lower than its earnings per share, the stock may be undervalued and headed for an eventual rise. If the current stock price is higher than EPS, on the other hand, the market may bring the price down in the future, unless earnings improve. Divide intrinsic value by the number of shares outstanding to determine roughly the value of assets owned by each shareholder. If this figure is higher than the current stock price, the shares may be selling at a discount, and may be headed upward over time.

About the Author

David Ingram has written for multiple publications since 2009, including "The Houston Chronicle" and online at As a small-business owner, Ingram regularly confronts modern issues in management, marketing, finance and business law. He has earned a Bachelor of Arts in management from Walsh University.

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