How to Differentiate Between the Intrinsic Value & Market Value of a Stock's Price

by Kathy Adams McIntosh

It's important to know the value of a stock to help you decide whether or not to purchase that investment. By understanding the value of a company’s stock, you can determine whether the price of the stock is reasonable. Multiple methods of valuing stock exist, including market value and intrinsic value. The market value of the stock refers to the amount of money another investor is willing to pay for each share. The intrinsic value refers to the amount the company is worth. Being able to differentiate between these two methods will help you understand what they mean.

Locate a financial reporting website. Type the name of the company you are researching into the search box on the site. The closing market value, or market price, appears on a per share basis.

Read the company’s balance sheet. Subtract the total liabilities from the total assets to determine the net worth of the company.

Read the stockholder’s equity section. Locate the number of shares outstanding.

Divide the net worth of the company by the number of shares outstanding. This equals the intrinsic value for each share.

Tips

  • Your final document contains a list of characteristics that allow you to differentiate between the intrinsic value and the market value of stock. Research the meaning of market value and intrinsic value before differentiating between the two. The more you understand the meaning of each, the more complete your differentiation list will be.
  • Additional factors will impact the market value of a stock. These include broker fees or commissions. These costs change the total cost to the investor, but don’t impact the market value.
  • Investors look for stocks with an intrinsic value greater than their market value. They expect the market value of these stocks to increase over time and create a profit for the investor.

Warning

  • Use several sources to research the meaning of intrinsic value. Various analysts calculate this number in different ways. Choose one method that makes sense to you. Make sure you understand this method and the meaning behind the number before you attempt to differentiate it from market value.

About the Author

Kathy Adams McIntosh started writing professionally in 2001. She has been published in "Cup of Comfort," "Community Connection" and "Wisconsin Christian News." Adams McIntosh belongs to the Fearless Freelancers and the Broadway Writers Guild. She earned her Master of Business Administration from the University of Wisconsin.

Photo Credits

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