Which description matches intrinsic valuation?

Which description matches intrinsic valuation?

• A. Relative valuation: using comparable companies
• B. Market speculation
• C. Intrinsic valuation: looking at the cash flows
• D. Asset replacement cost approach

Answer: (C)

Intrinsic valuation focuses on a business’s fundamentals by estimating the value from its expected future cash flows and bringing them back to present value. This approach asks what the company is truly worth based on the money it will generate, often using a discounted cash flow model. That’s why the description that emphasizes looking at the cash flows fits best. It contrasts with relative valuation, which gauges value by comparing to similar companies, market speculation, which is about betting on price moves rather than computing value from fundamentals, and asset replacement cost, which estimates value from the cost to replace the assets rather than from future cash generation.

Intrinsic valuation focuses on a business’s fundamentals by estimating the value from its expected future cash flows and bringing them back to present value. This approach asks what the company is truly worth based on the money it will generate, often using a discounted cash flow model. That’s why the description that emphasizes looking at the cash flows fits best. It contrasts with relative valuation, which gauges value by comparing to similar companies, market speculation, which is about betting on price moves rather than computing value from fundamentals, and asset replacement cost, which estimates value from the cost to replace the assets rather than from future cash generation.