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Intrinsic value is the slipperiest concept in value investing - Buffett uses it in every letter and never publishes the formula. This walks through the three definitions, the math that approximates it, and how invest-like surfaces the number on every stock page.
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"Intrinsic value" is the most-cited concept in value investing and the most-fudged. Warren Buffett uses the phrase in every Berkshire shareholder letter and famously refuses to publish a formula for it. Benjamin Graham defined it loosely. Most stock-screening tools compute a single number and call it "intrinsic value" without disclosing the assumptions.
This post walks through the three legitimate definitions, the math that approximates each one, and how invest-like surfaces a usable intrinsic-value range on every stock page.
"Intrinsic value is the discounted value of the cash that can be taken out of a business during its remaining life."
- Warren Buffett, 1992 letter
This is the conceptual gold standard. Discounted future cash flow available to the owner over the entire life of the business. The trouble: nobody can predict cash flow over an entire life. The number is precisely meaningful and practically uncomputable.
Buffett's working solution: assume the business lives forever (or close to it), apply a discount rate, project conservative growth, and you get a usable approximation. This is just DCF with strict assumptions.
Graham, in Security Analysis and The Intelligent Investor, gave a formula:
Intrinsic Value = EPS × (8.5 + 2g)
Where g = expected EPS growth rate in % (Graham used long-term sustainable growth)
For example: EPS $5, growth 8% → Intrinsic Value = $5 × (8.5 + 16) = $122.50 per share.
Graham updated this formula later to:
Intrinsic Value = EPS × (8.5 + 2g) × 4.4 / Y
Where Y = current high-grade bond yield
The Y adjustment normalises for interest-rate environment. At today's ~4.5% 10-year, the multiplier is 4.4/4.5 ≈ 0.98 (so very close to unadjusted).
Graham's formula is more usable than Buffett's but assumes a single growth rate forever. Real businesses have non-constant growth.
A typical "intrinsic value" calculator computes:
Intrinsic Value = Σ (FCF_year_n / (1 + r)^n) + Terminal Value / (1 + r)^10
Where r = discount rate (typically 8-12% for stable businesses)
Terminal Value = FCF_year_10 × (1 + g) / (r − g) (where g = perpetual growth, ~3%)
This is what most stock-analysis platforms display. It's an approximation of Buffett's definition, made workable.
The pitfall: garbage in, garbage out. The result is highly sensitive to the discount rate, the terminal growth rate, and the FCF projections. Change any of those by 1 percentage point and the value jumps 10-30%.
The honest practitioner approach is to compute three values, not one:
You then have a range, not a single number. The current market price relative to that range tells you whether the stock is undervalued (below the floor), fairly valued (within the range), or overvalued (above the ceiling).
Apply all three methods to Coca-Cola at the current price (~$72 as of May 2026):
Triangulation: $55-73 per share is the defensible intrinsic-value range. Coca-Cola at $72 sits at the top of the range. Not overvalued by a wide margin; not bargain-priced either. Fair-to-stretched.
This is the same triangulation invest-like applies to every stock - surfacing all three numbers on the /buffett/ko/ page so you can see the range, not just one point estimate.
The result has 4 decimal places, but the inputs are estimates. Treat it as a range of $55-73, not a precise $64.50.
Wall Street analysts' growth forecasts are typically too optimistic by 1-3 percentage points on 5-year horizons. Use conservative growth assumptions (~70-80% of the consensus rate) for safety.
In a 4.5% rate environment, an 8% discount rate is reasonable for stable businesses. In a 2% rate environment, 6% would be appropriate. In a 7% rate environment, 10% would be appropriate. The discount rate needs to respond to actual rates.
They're the same concept with different rigor. Buffett uses a strict version. Most tools compute a sloppy version. The math is the same; the discipline is different.
Every stock page on invest-like shows:
These are surfaced as a range on the verdict card, not as a single number. The point is exactly the triangulation described above - you should be able to see whether the stock is bargain-priced, fair, or expensive, without taking a single number as gospel.
The methodology for all three computations is documented at /methodology/ so any user can audit.
Intrinsic value is a real concept - it represents the present value of future cash flows, which is the actual economic worth of a business. But it's not a single computable number - it's a range that depends on assumptions you make about the future.
The right discipline:
That's the value-investing tradition. invest-like operationalises it. The number you see on our pages is the intersection of three honest estimates, not a single false-precision figure.
Educational tool. Intrinsic value calculations require assumptions about future cash flow that no model can predict precisely. The intrinsic value displayed on invest-like is an estimate with documented inputs. Past intrinsic-value estimates do not predict future stock returns; the calculation is a discipline, not a prediction.
Author: Zaid Ghazal, founder of invest-like, indie SaaS, Kiel, Germany.