Intrinsic Value

Intrinsic Value
To find the intrinsic value you need to have the following information about the company you are searching:
Owners Earnings
Long-term bond rate

To find how much you might save or lose:
Intrinsic Value
Value of business
Buying price(note:buying price will be replaced by ‘marked price’ in the following example)

Warren Buffett himself made a very salutary transaction in 1973. He bought a company called Washington Post. Information he had:

Owners earnings=10.4 million dollars
Long term bond rate=6.5%
Value of Washington Post=150 million dollars
Market Price=80 million dollars

Intrinsic Value/Value of business formula: Owners Earnings/Long term bond rate
Step 1(calculate)=10.4/0.068
Step 2(Estimate)=152(Estimated price:150)

Finding how much Buffett saved formula:
Value of business-market price
Step 1(calculate)=150-80

Buffett saved 70 million dollars by buying a company at 80 million dollars when it was worth 150 million dollars.

One reply on “Intrinsic Value”

  1. Pingback:The Warren Buffett Way(Summary) - Sara Gawde

Leave a Reply

Your email address will not be published. Required fields are marked *