A stock can trade below an estimate of value while the estimate still depends heavily on its discount rate, terminal assumptions, or treatment of debt and cash. Start with the part of the valuation that needs checking, then follow the relevant concept or comparison below.
Find the Concept Behind Your Valuation Question
A quoted stock price, a cash-flow forecast, and a model’s value estimate can all be expressed in dollars, yet each describes a different part of the analysis. The concepts below separate the underlying questions without replacing the detailed methods.
| Question | Start with | Related concept | What the distinction establishes |
|---|---|---|---|
| What could a business be worth beyond today’s market quote? | Intrinsic value | Fair value estimates | Both are estimates under stated assumptions; the quoted price remains observable market information. |
| What does the market currently assign to common shares? | Market capitalization | Share price and the relevant share-count basis | The market’s equity value can differ from a model-based estimate. |
| How do future cash flows become present value? | A valuation discount rate | Cost of capital | The selected rate must suit the risk and the capital claim represented by the cash flows. |
| What return is required to compensate for risk? | Required rate of return | Capital Asset Pricing Model | A required return is a valuation input; CAPM is one method for estimating an equity return requirement. |
| Does the figure refer to the operating business or its common shareholders? | Enterprise value | Equity value | Debt, cash, preferred claims, and other adjustments affect the bridge between firm and common-equity value. |
| What is assumed beyond the explicit forecast? | Terminal value assumptions | Terminal growth rate | Long-range assumptions can account for a substantial portion of a model’s estimated value. |
| How much room is there for estimation error? | Margin of safety | Sensitivity to assumptions | The gap between price and estimated value must be assessed alongside uncertainty in that estimate. |
A concept identifies what is being measured or assumed. A method such as discounted cash flow, comparable multiples, or an asset-based model specifies how an estimate is produced. Detailed model selection belongs to the Valuation Methods section.
Compare Concepts That Are Easy to Confuse
Choose the comparison that matches the terms being used. These five pages resolve different questions and retain their own scope.
| Comparison | Use it to clarify |
|---|---|
| Discount rate vs WACC | When a discount rate is firm-wide and how it must match the cash-flow basis. |
| Enterprise value vs equity value | How firm value differs from the value attributable to common shareholders. |
| Enterprise Value vs Market Cap | What debt and cash adjustments add to a quoted common-equity market value. |
| Market Cap vs Equity Value | When the two market-value terms coincide and when share-count or model assumptions differ. |
| Price vs Value | How the observable quote compares with an estimate and how the percentage gap is defined. |
How the Concepts Fit Into a Valuation
When building an estimate rather than looking up a definition, the inputs have an analytical order. The order helps expose which assumption is responsible when two valuations disagree.
Review cash generation, margins, reinvestment, balance-sheet obligations, and the operating forecast.
Use a discount rate consistent with the risk, timing, and capital providers represented by those cash flows.
Examine the terminal period, growth, normalized economics, and their share of the estimated value.
Identify whether the output is firm value or equity value, compare it with the relevant market price, and test sensitivity before interpreting the gap.
CFA Institute’s 2026 Equity Valuation reading distinguishes present-value, multiple-based, and asset-based models and explains why assumptions and model suitability matter. The concepts in this map help organize those choices; they do not replace the evidence needed to make an estimate.
If a small change in the discount rate, terminal assumptions, or forecast cash flow materially changes the estimate, report the sensitivity rather than treating the single figure as settled. An estimated discount to value is only as reliable as the assumptions behind it.