Intrinsic Value
Defined by Warren Buffet in Berkshire Hathaway’s 1996 owner’s manual as: “the discounted value of the cash that can be taken out of a business during its remaining life”.
This is the correct definition. You will sometimes see intrinsic value defined as “the discounted value of all future cash flows” – which is wrong.
Remember, a shoe box with a thousand bucks in it is worth a thousand bucks even though it doesn’t pay interest. Likewise, the intrinsic value of a business includes the excess cash currently held and takes into account the liquidation value of the business. Even a cash flow neutral business starts to look cheap when it’s got a hundred million in the bank and a market cap of ninety million.