1. What is Intrinsic Value Calculator?

Definition: This calculator computes the intrinsic value of a stock using Benjamin Graham's formulas, guiding value investing decisions.

Purpose: Helps investors identify undervalued stocks by comparing intrinsic value to market price.

2. How Does the Calculator Work?

The calculator supports two modes:

Initial Formula:

Where:

• \( V \): Intrinsic Value (dollars/share)
• \( \text{EPS} \): Earnings Per Share (dollars/share)
• \( g \): Expected Growth Rate (decimal)

Revised Formula:

Where:

• \( Y \): Current AAA Bond Yield (decimal)
• \( 4.4 \): 1962 risk-free return rate (%)

Steps:

• Select calculation mode (Initial or Revised).
• Enter EPS and growth rate; for revised mode, add bond yield.
• Apply the formula and display with 2 decimal places.

3. Importance of Intrinsic Value

Calculating intrinsic value is crucial for:

• Valuation: Identifies stocks trading below their true worth.
• Investment Safety: Provides a margin of safety against market volatility.
• Long-Term Strategy: Aligns with Graham’s value investing principles.

4. Using the Calculator

Example 1 (Initial): EPS = $5.00, g = 0.10:

• EPS: $5.00
• Growth Rate: 0.10
• Intrinsic Value: \( 5.00 \times (8.5 + 2 \times 0.10) = 5.00 \times 8.7 = 43.50 \) dollars/share
• Result: \( 43.50 \) dollars/share

Example 2 (Revised): EPS = $2.50, g = 0.10, Y = 0.05:

• EPS: $2.50
• Growth Rate: 0.10
• Bond Yield: 0.05
• Intrinsic Value: \( 2.50 \times (8.5 + 2 \times 0.10) \times \frac{4.4}{0.05} = 2.50 \times 8.7 \times 88 = 1,909.40 \) dollars/share
• Result: \( 1,909.40 \) dollars/share

Example 3 (Revised, Adjusted): EPS = $5.00, g = 0.15, Y = 0.04:

• EPS: $5.00
• Growth Rate: 0.15
• Bond Yield: 0.04
• Intrinsic Value: \( 5.00 \times (8.5 + 2 \times 0.15) \times \frac{4.4}{0.04} = 5.00 \times 8.8 \times 110 = 4,840.00 \) dollars/share
• Result: \( 4,840.00 \) dollars/share

5. Frequently Asked Questions (FAQ)

Q: What is a good intrinsic value?
A: A stock is undervalued if its market price is below the intrinsic value; use a margin of safety.

Q: Why adjust for bond yield?
A: It reflects current interest rates, adjusting the formula for economic conditions since 1962.

Q: Where to find EPS and growth rate?
A: EPS from income statements, growth rate from analyst forecasts or historical data.

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