Margin of safety

Also called: intrinsic value, undervalued

How far the share price sits below the model's value, a cushion in case the assumptions are too hopeful.

Formula

Margin of safety = 1 − (Share price ÷ Value per share)

Worked example

1. Example: price 30, value 40 → 1 − 30 ÷ 40 = 25%.

How to read it

Value investors often look for 20–30% or more, because every input in a DCF is an estimate.

See it with real numbers: DCF → (free account)