El value investing It is an investment method that consists of buying companies that are listed at a price lower than their value. But what value? In this article I will try to explain the difference between market value, company value, notional value and intrinsic value so that there is no confusion between these four basic concepts of fundamental analysis in general and of value investing in particular.
The "market value" or "stock market value" is synonymous with capitalization bursátil, which, as we have already seen, is the money that would have to be paid to buy the entire company if we were to buy it at the current market price. In this case, although we speak of “value” we are actually referring to the market “price”.
He "company value”Is a metric used to determine the price that we would have to pay to buy the entire company if we discount its net financial position. That is, although it is called "company value" we are talking in terms of price, not value. It's like a "modified market capitalization."
The “notional value” of a share shows the value of the company's equity that corresponds to each share. Its calculation is simple:
Notional value = Equity / Number of shares
For example, if a company has equity capital of € 100 million and has 20 million shares, the notional share value will be € 5 (100/20).
It is a widely used metric in relative valuation, especially when compared with the price per share, giving rise to the “price / book value” ratio.
Finally, the “intrinsic value”Is the amount that we calculate that a company should be worth due to its financial and competitive characteristics. Intrinsic value is the basis on which value investing is centered, so its calculation is of vital importance.
This article started like this:
Value investing is an investment method that consists of buying companies that are listed at a price lower than their value. But what value?
The answer now you know, its intrinsic value.