Intrinsic valuation analysis is a crucial tool for an analyst, but it has limitations when used as the sole method. One of the most significant weaknesses of intrinsic valuation is the complex and highly sensitive inputs it requires, as well as its lack of external market-driving factor analysis.
Although valuation is sometimes referred to as more of an art than a science, it is ultimately grounded in the fundamental principle that an asset's value is the present value of its future cash flows. Intrinsic valuation is a method that links the value of an asset to its ability to generate cash flows and the risk associated with those cash flows.
