Consequently, the “intrinsic” part of the valuation process of a company appears to require an objective standard, while the “value” part may require a subjective application of an estimation of worth. Of course, finding the intrinsic part of value merely requires one to determine that portion of the stock price that represents book value (or one could narrow it further and find tangible book value, liquidation value, or even replacement cost). Unfortunately, most great business that have strong operating metrics do not often, if ever, sell for their “intrinsic” book value. Therefore, it has become necessary to find value by introducing as part of the "intrinsic value" equation an estimation of the value of the business as an ongoing concern looking towards the income stream which the business produces. And that is where the trap is found.
I realize then that when evaluating a business for a suitable investment it is appropriate for a new investor to seriously focus on the intrinsic portion of the valuation in order to ground ones expectations in tangible reality. While it is one thing to pay $47.00 per share for KO and receive only $7.00 in tangible value, it is quite another to do the same for a company with a less robust history.