The formula to calculate Intrinsic Value (V) is:
\[ V = \frac{EPS \times (8.5 + 2g) \times 4.4}{Y} \]
where:
Intrinsic value is the true worth of an asset, such as a company's stock, based on fundamental analysis. The formula provided by Benjamin Graham helps investors determine the intrinsic value of a stock to identify good investment opportunities.
Margin of safety refers to the difference between the intrinsic value of a stock and its current market price. Investors use this margin to cushion against potential losses.
Let's assume the following for ABC Corp:
To calculate the Intrinsic Value:
\[ V = \frac{23 \times (8.5 + 2 \times 10) \times 4.4}{3.7} = 779.51 \]
To calculate the Margin of Safety:
\[ MS = \frac{779.51 - 500}{779.51} \times 100 = 35.86\% \]
Therefore, the Intrinsic Value is $779.51, and the Margin of Safety is 35.86%.
