Intrinsic value is a measure of what an asset is worth. This measure is arrived at by means of an objective calculation or complex financial model, rather than using the currently trading market price of that asset.Some economists think that discounted cash flow (DCF) analysis is the best way to calculate the intrinsic value of a stock. Estimate all of a company's future cash flows. Calculate the present value of each of these future cash flows. Sum up the present values to obtain the intrinsic value of the stock.

The ratio is the ratio of price per share to earning per share is commonly known as the price-earning ratio. Much of the real world discussion of stock market valuation concentrates on the firm’s price-earning multiple. Earning a multiplier approach states that the price of the stock is equal to the product of its earnings and a multiplier. It implies that the price of a stock is the product of EPS and P/E multiplier of that stock.

The P/E ratio helps investors determine the market value of a stock as compared to the company's earnings. In short, the P/E ratio shows what the market is willing to pay today for a stock based on its past or future earnings.