The calculation of intrinsic value is not so simple." – Anon. From The Essays of Warren Buffett: Lessons for Corporate America, an explanation of the difference between book value and intrinsic value. "Value is destroyed, not created, by any business that loses money over its lifetime, no matter how high its interim valuation may get. Intrinsic value can be defined simply: it is the discounted value of the cash that can be taken out of a business during its remaining life. Intrinsic value is an estimate rather than a precise figure. You can gain some insight into the differences between book value and intrinsic value by looking at one form of investment, a college education. Think of the education’s cost as its ‘book value’. If this cost is to be accurate, it should include the earnings that were foregone by the student because he chose college rather than a job. "For this exercise, we will ignore the important non-economic benefits of an education and focus strictly on its economic...
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