Lesson 1 of 3 · 7 min read
What is a company worth?
Price is what you pay, value is what you get.
Price ≠ value
The share price is what the market asks today. The 'intrinsic value' is what the company is really worth based on future earnings. Investing is about finding that difference.
Discounted Cash Flow (the idea)
A DCF estimates all future free cash flows and discounts them back to today (because money is worth less later). The sum = a rough estimate of the value. It is sensitive to your assumptions — 'garbage in, garbage out'.
Multiples as a shortcut
In practice, many people use multiples (P/E, EV/EBITDA) to quickly compare companies with sector peers. Faster than a DCF, but cruder.
Margin of safety
Because every estimate is uncertain, value investors only buy with a 'margin of safety' — well below their estimated value. That way you have a buffer if you are wrong.
Remember this
- Price is what the market asks; intrinsic value is what the company is really worth.
- A DCF discounts future cash flows, but is sensitive to assumptions ('garbage in, garbage out').
- Multiples (P/E, EV/EBITDA) are a faster but cruder shortcut.
- Buy with a margin of safety, well below your estimate, as a buffer.
There is a quiz for this lesson
2 questions that check whether it stuck. They live in the app, because a quiz nobody grades teaches nothing.
Want to practise, not just read?
Stockedin teaches investing in short lessons, with €10,000 in demo money to make your mistakes with. Stocky, the AI coach, explains anything you get stuck on.