There is a significant difference between intrinsic value and market value. Intrinsic value is an estimate of the actual true value of a company. Market value is the current value of a company as reflected by the company's stock price. Therefore, market value may be significantly higher or lower than the intrinsic value.

Determining Intrinsic Value

There is an inherent degree of difficulty in arriving at a company's intrinsic value. Due to all the possible variables involved, such as the value of the company's intangible assets, estimates of the genuine value of a company can vary greatly between analysts.

Some analysts utilize discounted cash flow analysis to include future earnings in the calculation, while others look purely at the current liquidation value or book value as shown on the company's most recent balance sheet. Further difficulty arises from the fact that the balance sheet itself, since it is an internally produced company document, may not be a completely accurate representation of assets and liabilities.

Determining Market Value

Market value is the company's value calculated from its current stock price and rarely reflects the actual current value of a company. The reason for this is that the market value reflects supply and demand in the investing market, how eager (or not) investors are to participate in the company's future.

The market value is usually higher than the intrinsic value if there is strong investment demand, leading to possible overvaluation. The opposite is true if there is weak investment demand, which can result in undervaluation of the company.