How to calculate Intrisic Value of a company? What is the difference between Intrinsic Value and Book Value?

Please elaborate on how to calculate intrinsic value of company.


Kindly give some Indian perspective.How to calculate Intrisic Value of a company? What is the difference between Intrinsic Value and Book Value?
In simple terms, book value is based on the value of total assets less the value of total liabilities - it attempts to measure the net assets a company has built up until the present time. In theory, this is the amount that the shareholders would receive if the company were to be completely liquidated. For example, if a company has Rs 23.2 billion in assets and Rs19.3 billion in liabilities, the book value of the company would be the difference of Rs 3.9 billion (book value). To express this number in terms of book value per share, simply take the book value and divide it by the number of outstanding shares. If a given company is currently trading below its book value, it is often considered to be undervalued.





There are, however, several problems that arise with the use of book value as a measure of value. For example, it would be unlikely that the value the company would receive in liquidation would be equal to the book value per share. Nevertheless, it can still be used as a useful benchmark to estimate how much a profitable company's stock might drop if the market turns sour on it.





Intrinsic value is a measure of value based on the future earnings a company is expected to generate for its investors - it attempts to measure the total net assets a company is expected to build in the future. It is considered the true value of the company from an investment standpoint and is calculated by taking the present value of the earnings (attributable to investors) that a company is expected to generate in the future, along with the future sale value of the company. The idea behind this measure is that the purchase of a stock entitles the owner to his or her share of the company's future earnings. If all of the future earnings are accurately known along with the final sale price, the company's true value can be calculated.





For example, if we assume that a company will be around for one year and generate Rs 1,000 before being sold for Rs 10,000, we can find the intrinsic value of the company. At the end of the year we will have received Rs 11,000. If our required rate of return is 10%, then the present value today of the future earnings and sale price is Rs 10,000. If we were to pay more than Rs 10,000 for the company, our required rate of return would not be met.