It is the value of an asset or entity or share or security , which is determined on the basis of fundamental analysis. This value has no connection or relation to the market value of the product, stock , entity or asset.
Where it is used
- For trademarks , patents , brand names or copyrights etc., which are intangible assets. This is because such intangible assets cant reflect accurate & true market value.
Used in Options trading
Call option
Intrinsic value in Call Option = Market price of the option - Strike price of the option
Here if the market price is less than strike price of the option , then the option wont have intrinsic value
Put option
Intrinsic value in Put Option = Strike price of the option – Market price of the option
Here if the market price greater than strike price , then the option has no intrinsic value.
Why it is used
- It is a vital concept in value investing. Value investing refers to investing in the asset or security or stock or business, only for it is worth for.
- It is independent concept than market value, hence it has proven to be effective & accurate for business evaluation or investment option evaluation.
- It takes into account quantitative factors like financial data & qualitative factors like business model etc. Hence it considers all aspects for evaluation.
