5 Ways to Calculate the Intrinsic Value of a Stock (With Real Examples)

To calculate the intrinsic value of a stock, forecast the cash the business will produce for its owners, divide each future year's cash by (1 + your required return) raised to the number of years away, add it up and divide by the share count. That's a discounted cash flow (DCF). The other four standard methods are a reverse DCF, multiples, the dividend discount model and book value. We ran all five on Coca-Cola with numbers from its SEC filings. The answers run from $8.40 to $90.91 a share, against a recent price of $92.68.

The $8.40 is book value, the wrong tool for a company like this. Leave it out and the answers still span $56 to $91. The assumptions do more work than the method, which is why we start with the reverse DCF: it turns the price into one question you can judge.

Watch it play outFive methods, five answers for the same stock

Coca-Cola's recent price is $92.68 a share. Each method asks a different question about what it's worth.

Book value, the accounting net worth: $8.40. The brand that earns the money isn't on the balance sheet.

A DCF and the dividend discount model both land near $63, using the same 8% required return.

Price-to-earnings: $56.28 at PepsiCo's multiple, $90.91 at Coca-Cola's own ten-year median.

The reverse DCF starts at the price instead. To justify $92.68, free cash flow must grow 9.8% a year for ten years.

Over the last ten years it grew 3.6% a year. That gap is the question to judge before you buy.

Replay

What you need before you start

Intrinsic value is what a business is worth based on what it produces, not what the market pays today. Warren Buffett's definition is the one most methods start from: it "is the discounted value of the cash that can be taken out of a business during its remaining life."

You need six numbers, all in the annual report (10-K) and the latest quarterly report (10-Q). Here are Coca-Cola's:

Free cash flow is operating cash flow minus capital spending (money spent on plants, trucks and equipment). Coca-Cola reported just $5.30 billion of it last year, but that figure absorbed a one-off $6.07 billion payment to finish buying fairlife, a dairy brand. Coca-Cola's own adjusted figure adds it back, to $11.37 billion, and so do we. Start a DCF from the reported $5.30 billion and the value falls from $63.60 to $29.64 a share. Your starting year has to be a normal one.

1. Discounted cash flow: what is the future cash worth today?

A DCF puts Coca-Cola's intrinsic value at $63.60 a share, about a third below the price. You forecast free cash flow, then shrink each future year's cash back to today's dollars at the yearly return you require, called the discount rate.

The assumptions:

• Growth: 5% a year for ten years. Over the past ten years Coca-Cola's free cash flow grew 3.6% a year, its earnings per share 6.2% and its dividend 4.5%. We use 5%, the middle of that range. Management expects about $12.2 billion of free cash flow this year, 7.3% more than last year, but one year isn't a decade.
• Discount rate: 8%. The 10-year US Treasury recently yielded 5.13%, so 8% asks about 3 points more for owning the stock. That's a low premium, and we chose it because Coca-Cola is unusually steady. Over the past ten years its stock swung less than all but three of the roughly 440 current S&P 500 members with that much history, and it moved about half as much as their average (a beta of 0.53). If you want a bigger cushion, the 9% setting below gives $52.70.
• Terminal growth: 3% a year forever after year ten. No company outgrows the economy forever, so keep this low.

Rows are rounded, so adding them by hand can be off by a few cents. The terminal value is what every year after year ten is worth, using the shortcut formula in the table. That $274.3 billion is the intrinsic value of the whole company. Divide by the share count and you have the intrinsic value per share.

Of that value, 64% sits in the terminal value, cash that arrives more than ten years from now. That's normal, and it's why the long-run assumptions matter most.

There's also no step that subtracts debt. Operating cash flow is counted after Coca-Cola pays its interest, so this free cash flow already belongs to shareholders. Subtracting net debt too would charge for the debt twice, an easy slip to make. (If you start from cash flow before interest, then you do subtract net debt.) To run this version in our free DCF calculator, enter zero for net cash.

Three inputs move Coca-Cola's DCF value from $36 to $118

Pick the discount rate, the growth for ten years and the growth after that

Discount rate

7%8%9%10%

Free cash flow growth, years 1 to 10

3%5%7%

Growth after year ten

2%3%4%

Intrinsic value per share$58.22$67.85$83.90$68.30$79.97$99.43$80.11$94.20$117.70$48.38$54.28$63.14$56.44$63.60$74.33$65.86$74.51$87.47$41.35$45.24$50.67$48.00$52.70$59.29$55.74$61.42$69.38$36.09$38.77$42.35$41.68$44.93$49.27$48.19$52.11$57.34

−37.2%−26.8%−9.5%−26.3%−13.7%+7.3%−13.6%+1.6%+27.0%−47.8%−41.4%−31.9%−39.1%−31.4%−19.8%−28.9%−19.6%−5.6%−55.4%−51.2%−45.3%−48.2%−43.1%−36.0%−39.9%−33.7%−25.1%−61.1%−58.2%−54.3%−55.0%−51.5%−46.8%−48.0%−43.8%−38.1%below Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent priceabove Recent pricebelow Recent priceabove Recent priceabove Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent pricebelow Recent price

Recent price $92.68

$36.09$117.70

Past decade's paceOur base caseNear this year's outlook

The discount rate is the strongest lever. From our base case, moving it one point either way shifts the value by $11 to $16 a share. Every setting that pushes the value past $90 uses 7%, a premium of under 2 points over Treasuries for owning a stock. A single DCF number tells you little until you see the range around it.

2. Reverse DCF: what growth does the price already assume?

At $92.68, Coca-Cola's price assumes free cash flow grows about 9.8% a year for ten years, then 3% forever, with the same 8% required return. A reverse DCF runs the model backward: you plug in the price and solve for the growth.

1. Find the market value, or market capitalization: $92.68 × 4.313 billion shares = $399.7 billion.
2. Keep everything else from method 1: $11.37 billion of starting cash, 8%, 3% after year ten.
3. Find the ten-year growth rate that makes the DCF equal $399.7 billion. Trial and error works, or use our reverse DCF calculator with ten years, 8% and 3%.

At 9.8% a year, free cash flow would climb from $11.4 billion to about $28.9 billion in ten years. Here's how that compares with Coca-Cola's record:

The price needs faster growth than anything in Coca-Cola's record

Growth the price needs, next ten years9.8%

Free cash flow outlook, this year7.3%

Earnings per share, past ten years6.2%

Our DCF base case5.0%

Dividend per share, past ten years4.5%

Free cash flow, past ten years3.6%

Yearly growth rates. The first bar assumes an 8% required return and 3% growth after year ten.

You can flip the question too. If free cash flow grows 5% a year for ten years and 3% after that, a buyer at $92.68 earns about 6.5% a year. The 10-year Treasury pays 5.13% with no business risk. Is an extra 1.3 points a year enough to own Coca-Cola instead?

The growth answer depends on the discount rate you hold fixed. At 7%, the price needs 6.8% growth a year; at 9%, it needs 12.4%.

3. Multiples: what P/E does the stock usually get, and what does its peer get?

Multiply earnings per share by a normal price-to-earnings ratio (P/E: price divided by EPS). At Coca-Cola's own ten-year median P/E of 27.3, it's worth $90.91, right around the price. At PepsiCo's current P/E of 16.9, it's worth $56.28.

Each year-end P/E is the closing price on the last trading day of the year divided by that year's EPS. Over the last ten year-ends, Coca-Cola's ranged from 23.0 to 31.6, ignoring one year when a one-off tax charge cut EPS to $0.29 and pushed the ratio to 158. A median ignores outliers like that.

Coca-Cola's P/E sits at its ten-year median; PepsiCo's sits far below

Coca-Cola, last ten year-ends23.0–31.6×

PepsiCo now16.9×

Ten-year median27.3×

Coca-Cola now27.8×

10×15×20×25×30×35×

Both yardsticks carry a hidden assumption. The own-history value assumes the past decade's multiple was right, and for most of that decade the 10-year Treasury yielded far less than it does now (FRED data). The peer value imports PepsiCo's own story: its P/E now sits far below its own ten-year median of 26.1, so its troubles pull Coca-Cola's value down with it.

For companies with a lot of debt, compare EV/EBIT instead: enterprise value (market value plus debt minus cash) divided by operating profit, so borrowing doesn't distort the comparison. Quick formulas such as the Graham number and the PEG ratio are multiples with fixed assumptions built in; we test them in 5 fair value formulas.

4. Dividend discount model: what are the dividends worth?

Value equals next year's dividend divided by the gap between your required return and dividend growth. This is the Gordon growth model, and for Coca-Cola it gives $63.43.

It lands next to the DCF for a reason. Coca-Cola paid $8.8 billion of dividends last year, 77% of its adjusted free cash flow, and it has raised the dividend for more than 60 years in a row. When the dividend is most of the cash, valuing the dividend is close to valuing the cash.

The formula is touchy when growth gets near the required return:

Run it backward and you get the same message as the reverse DCF. Next year's $2.22 is a 2.4% dividend yield on $92.68. Add 4.5% growth and a buyer at today's price can expect about 6.9% a year, close to the reverse DCF's 6.5%.

Two catches. Growing the dividend 4.5% forever while free cash flow grows more slowly would eventually push the payout past 100% of the cash, so the model quietly assumes cash keeps pace. And it doesn't fit companies that pay little or no dividend, or that return cash mostly through buybacks.

5. Book value: what are the net assets worth?

Book value is assets minus liabilities, the company's accounting net worth. For Coca-Cola it's $36.15 billion, or $8.40 a share across 4.303 billion shares outstanding. That's less than a tenth of the price. For a company like this, book value is the wrong tool, for two reasons.

First, buybacks shrink it. Coca-Cola holds 2.7 billion of its own shares that it bought back over the decades, at a cost of $56.9 billion, and accounting subtracts that from equity.

Buybacks took $56.9 billion out of Coca-Cola's book value

Paid-in capital$22.5B

Profits kept+$84.2B= $106.7B

Shares bought back−$56.9B= $49.8B

Currency and other losses−$13.6B= $36.2B

Book value$36.2B

Second, the brands that earn the money mostly aren't there. Under US accounting rules, the cost of building a brand in-house is expensed as it's spent, so it never becomes an asset (PwC's accounting guide). The $12.5 billion of trademarks on Coca-Cola's balance sheet are brands it bought. Bought brands can also be written down: Coca-Cola cut the value of BodyArmor, a sports drink it acquired, by $960 million last year and $760 million the year before (10-K). Strip out goodwill and those trademarks and only $1.90 a share is left. Meanwhile the business earned $13.1 billion last year on $32.2 billion of year-end equity, a 41% return.

Where book value works: JPMorgan Chase

Banks are different. Their assets are mostly loans and bonds, recorded far closer to what they're worth than a brand ever is, so book value is a real anchor. The useful version is price to tangible book (book value minus goodwill and other intangibles), adjusted for how much the bank earns on that equity. Insurers, which also hold mostly financial assets, work the same way.

We use a 10% required return for a bank, above Coca-Cola's 8%, because bank earnings swing more with the economy, and the same 3% long-run growth as Coca-Cola. A bank earning exactly 10% on its tangible equity would be worth about 1 times tangible book. JPMorgan earned 20% in its latest quarter, and the same in that quarter a year earlier; if that lasts, it's worth $273.55. The recent price implies it earns about 23.8% forever, so the price asks for more than its recent record. Run backward like this, it's the same reverse question, asked of a bank.

Why do the five answers disagree?

Each method answers a different question, and the agreements can mislead as much as the gaps. The DCF and the dividend model agree at about $63 because they share the 8% required return and Coca-Cola pays out most of its cash: one assumption doing double duty. When two methods agree, check whether they share an input before you take comfort.

The price sits above every cash-based answer at 8%. So either the market expects faster growth, accepts a lower return than 8%, or both. The reverse DCF puts a number on that.

Our read

The methods disagree, and the assumptions do the work: on Coca-Cola, a single DCF moves from $36 to $118 as three inputs change. So we don't trust any one value, ours included.

For most readers, the reverse DCF is the most honest starting point, because you don't have to pick a growth rate. It names the one the price already assumes: 9.8% a year for a decade, from a company whose cash flow grew 3.6% a year over the last one. Put the other way, a buyer today earns about 6.5% a year if growth runs at 5%, against 5.13% from a Treasury. That's a judgment you can make. Then use a DCF, multiples or dividends to test it.

Go deeper with member research

Our member chapter Build a DCF from operating drivers builds the model from revenue up instead of starting from one free cash flow number: sales and operating margin, then after-tax operating profit, minus reinvestment, to free cash flow and value per share. It includes the test we'd run next on Coca-Cola's 9.8%: long-run growth roughly equals the share of profit reinvested times the return on that new money, so a growth rate the company can't fund is a warning. It also covers the terminal-value trap and how to stress a model before you trust it, with an interactive model you can change. The next chapter, What is the price already assuming?, runs the model backward, as we did here, and turns the implied growth into the sales, margins and investment a business would actually need.

Keep reading

• 5 fair value formulas: the Graham number, PEG and yield shortcuts, run across the S&P 500.
• 7 free stock valuation calculators, tested on the same stock.
• How to research stock picks: a 7-question checklist that puts valuation in context.
• How to read a 10-K: where every input on this page lives in the filing.

Questions readers ask

What is the intrinsic value of a stock option?

It's a different idea. For a call option, it's the stock price minus the strike price, or zero if that's negative; for a put option, it's the strike minus the stock price. It's what the option would be worth if exercised right now.

Is intrinsic value the same as fair value?

Close, but not the same. Intrinsic value usually means your own estimate from cash flows; fair value is often a quick formula or a figure from an analyst or website. We compare five fair value formulas in this guide.

Is there one true value of a stock?

No. Each method rests on assumptions you choose, and Buffett writes that two people looking at the same facts will almost always reach at least slightly different figures. Aim for a range you can defend.

What discount rate should I use?

Start from the 10-year Treasury yield, 5.13% recently, and add a premium for the risk of owning the stock. We used 8% for Coca-Cola and 10% for JPMorgan. Always show the value at a point higher and lower.

How we built this

• Coca-Cola: 10-K for the year ended December 31, 2025, the fourth-quarter 2025 earnings release (free cash flow, the $6,069 million fairlife payment, the 2026 free cash flow outlook) and the 10-Q for the quarter ended July 3, 2026 (balance sheet, $0.53 quarterly dividend), from SEC EDGAR, plus XBRL company facts for EPS, dividends and share counts. EPS over the last 12 months is $3.04 for 2025, minus $1.65 for the first half of 2025, plus $1.94 for the first half of 2026.
• Ten-year growth rates run from 2015 to 2025: free cash flow $7.98 billion to $11.37 billion (2025 excludes the fairlife payment), diluted EPS $1.67 to $3.04, dividends per share $1.32 to $2.04.
• Year-end P/E: the last December close for 2016 through 2025 divided by that year's diluted EPS. PepsiCo's EPS over the last 12 months uses its 10-K for 2025 and its 10-Q for the quarter ended September 5, 2026.
• Volatility and beta: 120 monthly returns to October 19, 2026, from dividend-adjusted closes for the 438 current S&P 500 members with ten years of history (so companies that left the index are missing). Beta is measured against the equal-weighted average of those members.
• JPMorgan Chase: third-quarter 2026 earnings release (tangible book value per share, ROTCE).
• Prices: closing prices on October 21, 2026, from Nasdaq's quote data. Treasury yield: 10-year constant maturity on October 21, 2026, from the U.S. Treasury.
• DCF and reverse DCF use end-of-year discounting, matching our calculators. Values change as new filings arrive; Coca-Cola's next quarterly report will move the inputs slightly.