Definition of Intrinsic Value
Intrinsic value is a broader term that means real worth. In finance terms, the intrinsic value is referred to as the true value of an asset that is calculated by the financial analysts keeping in view the multidimensional factors.
Intrinsic value is also used for mergers and acquisitions in which case the potential bidder calculates the maximum price that should be offered to a target company.
An investor can assess the intrinsic value of an equity share of a company he is intended to invest in, by using various valuation methods.
Example of Intrinsic Value:
The dividend valuation method suggests that the value of one share of a company is no more than $50, whereas the share is trading at $45 in the market. This suggests that the share is undervalued and its price will increase in the future. So based on this assessment he might decide to acquire any shares in that company and might benefit by selling them when the price rises.