What is Intrinsic Value & Net Cash Flows (simply explained by a Data Scientist in 1 minute)?!
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Intrinsic Value is one of Warren Buffet’s primary Data points that he looks at when investing in a Company!
What is Intrinsic Value?
The discounted value of the cash that can be taken out of a business during its remaining life (affected and/or adjusted by cash flows and interest rates).
This can be calculated by the present value of the net cash flows from the present until 3–5 years based on current bond rates.
A good rule of thumb is to compare current Market Cap with Potential Earnings in 5 years.
Intrinsic Value should be 25% higher.
For Example: if a Market Cap of a Company is $5 Billion.
This means all the shares are worth $5 Billion.
The Intrinsic Value should be 25% higher if we look to invest a certain amount of money.
Can we get 25% or more from investing in this company?!
What is Net Cash Flows?
It is simply the continuous money that exists after paying expenses.
What is Current Bond Rates?
This changes quite frequently and varies depending on what bond rate you are looking at so here are some resources to dive deeper and increase your Financial IQ!
One of our favorite sources for all Warren Buffet: https://www.buffettsbooks.com/how-to-invest-in-stocks/intermediate-course/lesson-21/
