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Glossary · PSX term

Intrinsic value.

Intrinsic value is an estimate of what a company is truly worth based on its fundamentals.

Definition

Unlike the market price, intrinsic value comes from analysing cash flows, assets, and earnings power, and investors compare the two to judge whether a stock is cheap or expensive. It is an estimate, not a precise figure.

Worked example

If a DCF suggests intrinsic value of Rs. 150 while the stock trades at Rs. 100, some investors see it as undervalued.

Related on PSX Clarity

Discounted cash flow (DCF)

Dividend discount model

Margin of safety

More glossary terms

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Index weight is the share of an index's value that a single company represents.

The index divisor is a number used to convert total market value into the index level and keep it consistent over time.

Index rebalancing

Rebalancing is the periodic review where an index adds, drops, or re-weights its member companies.

Impact cost is how much your own order moves the price against you because of limited liquidity.

Interim dividend

An interim dividend is a payout declared partway through the financial year, before annual results.

Initial Public Offering (IPO)

An IPO is the first sale of a company's shares to the public when it lists on the exchange.

Inflation is the rate at which the general level of prices rises over time.

Insider trading

Insider trading is dealing in shares using important non-public information, and it is illegal.

Income statement

The income statement shows a company's revenues, costs, and profit over a period.