What Is Intrinsic Value?
Intrinsic value is what a business is really worth, based on the cash it can produce in the future. The share price on any given day may be higher or lower.
Price vs value
Warren Buffett put it simply: price is what you pay, value is what you get. The market price changes every second with people's moods. Intrinsic value changes slowly, as the business itself changes.
How investors estimate it
The classic method is a discounted cash flow: estimate the cash the company will make in the future, then work out what that is worth today. Simpler methods compare P/E or other ratios with similar companies.
Why it is only an estimate
Nobody knows the future. Two smart investors can calculate very different values for the same company. That is why value investors buy only with a margin of safety.
See it in real companies
Open a company to see what it sells and how it makes money.