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The Intrinsic Value

The intrinsic value (also ‘fundamental value’) of an online business is the difference between the total current value of its assets and the market value of its debt. The intrinsic value is relatively easy to determine in company valuation. Intrinsic value is also referred to as the ‘visible equity’ or ‘net asset value’ and easy to understand.

The intrinsic value is primarily a reflection of the financial history: profits, dividend payments, investments and financing. This methodology therefore has a limited meaning in the valuation of online businesses.

Book value of your online business

The determination of the intrinsic value is based on the book value of your online business. If you run your web store from a legal entity like a Ltd, this value is stated on the balance sheet in the financial statements: equity, reserves, earnings, etc. Now, the book value is the result of an administrative process. It is the determination of profit by your accountant and thus a result of the chosen method for valuation and depreciation of assets and valuation of debt.

Value in economic dealings

The book value of balance sheet items usually differs from the current market value: the fair value or the value in economic dealings. The intrinsic value therefore also weighs: silent reserves, debtors’ deposits, situation of the work in progress, volume of pre-billed sales, current stock, etc.

Profit potential of an online business for sale

The applicability of ‘intrinsic value’ for the valuation of online businesses is limited in practice. It is mainly the outcome of an accounting process. And in addition, intrinsic value is just and only the result of a company’s financial history. The buyer of a company is more interested in the future value than the historical value of the company.

From the economic point of view, the buyer acquires the future free cash flow that he can expect in return for his investment: the acquisition of an online business.  He reaps the harvest of the acquired business. For a more thorough valuation of your online business, we feel other business valuation methods will have to be regarded as well. 

Order a comprehensive report with the valuation of your online business.

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