IntrinsicIQ — Methodology

Overview — Primary Model + Independent Checks

No single valuation method fits every business. IntrinsicIQ selects one primary intrinsic model from the company's sector, industry, dividend profile, and available financial data. That primary model carries 100% of the headline intrinsic value.

Secondary intrinsic methods may still run at zero weight to expose model divergence, while relative multiples remain separate market benchmarks. Neither changes the headline value. The output sits alongside a Bull/Base/Bear scenario range and, where supported, a Monte Carlo P10–P90 distribution that quantifies assumption sensitivity.

Core principle: A market-anchored multiple can challenge an intrinsic estimate, but it cannot determine that estimate without making the result circular. Cross-checks stay visible and independent.

Business route	Headline intrinsic model	Independent check / benchmark	Headline weight
DCF-routed operating companies	DCF / FCFF	EV/EBITDA market-multiple benchmark	DCF 100%
Eligible dividend payers	Dividend Discount Model	P/B + ROE intrinsic cross-check	DDM 100% · check 0%
Banks and bank-like financials	Excess Returns / Residual Income	P/B + ROE intrinsic cross-check	ER 100% · check 0%
Equity REITs	FFO-anchored DDM	P/FFO market-multiple check	REIT DDM 100% · check 0%
Alternative asset managers	Fee-Related Earnings DCF	Distributable Earnings DDM cross-check	FRE-DCF 100% · check 0%

Real Estate distinction: Financial Modeling Prep groups both REITs and fee-based real estate services under the Real Estate sector. The engine therefore reads the accompanying industry classification: tickers whose industry contains "REIT" are routed to the FFO-anchored REIT model, while other real estate companies (e.g. CBRE, JLL) are routed to DCF. Dividend routes also apply yield and industry guards; companies that do not fit the dividend model's premise fall back to a more appropriate route.

Primary Model — Discounted Cash Flow (DCF / FCFF)

1

Free Cash Flow Projection

Free cash flows to the firm (FCFF) are projected over a 10-year explicit forecast horizon. All inputs are derived from trailing twelve-month (TTM) financials assembled from the four most recent quarterly filings, and adjusted to user-specified assumptions.

Normalised FCFF — Default Path Reinvestment Rate_t = max(g_t+1, 0) / ROIC_t
Reinvestment_t = NOPAT_t × Reinvestment Rate_t
FCFF_t = NOPAT_t − Reinvestment_t

The default path sizes reinvestment from growth and marginal ROIC, with ROIC fading toward a stable, bounded terminal level. If the analyst explicitly overrides CapEx, the scoped accounting path is used instead:
FCFF = NOPAT + D&A − CapEx − ΔNWC.

The normalised path ties growth to the capital required to fund it, avoiding a free-growth assumption. The explicit CapEx path remains available when the analyst deliberately supplies an accounting reinvestment view.

Pre-revenue abstention: if reported revenue is zero or negative, IntrinsicIQ does not run the operating DCF and reports no intrinsic value or upside. Projecting from a zero revenue base would not provide a reliable operating anchor, while adding net cash afterward would mislabel cash runway as enterprise value. Pipeline assets and clinical probabilities require a separate, domain-specific framework.

2

Discount Rate — WACC

The weighted average cost of capital is computed from first principles using a bottom-up beta for the cost of equity and a synthetic default-spread approach for the cost of debt.

Cost of Equity — CAPM Ke = Rf + β_bottom-up × ERP + CRP

Rf follows the valuation currency, not the issuer's passport. A USD-denominated ADR valuation therefore uses the current 10-year U.S. Treasury yield; the API exposes both rate and valuation currencies so a non-USD proxy cannot remain hidden.
ERP = configured IntrinsicIQ U.S. equity risk premium (currently 5.5%).
β = industry unlevered beta re-levered at market D/E for operating companies.
CRP = country-risk exposure informed 50% by domicile and 50% by mapped revenue geography when available. The country table refreshes daily from FMP's market-risk-premium endpoint, falls back to the versioned January 2026 Damodaran snapshot, and is normalised relative to the U.S. country component already represented in the U.S. ERP.

Synthetic Cost of Debt Kd_pre-tax = max(Rf + Coverage Default Spread, Interest Expense / Debt)
Kd = Kd_pre-tax × (1 − Effective Tax Rate)

The default spread maps EBIT / interest coverage to a synthetic rating. Net-cash companies use the risk-free rate because their borrowings carry no net default exposure in the model.

WACC (market-value weights) WACC = Ke × We + Kd × Wd

3

Terminal Value — Gordon Growth Model

After the explicit 10-year forecast, the business is assumed to grow perpetually at the terminal growth rate, with the reinvestment required to support that growth charged explicitly.

Normalised Terminal Value Reinvestment Rate_∞ = g / ROIC_stable
FCFF_∞ = NOPAT_n × (1 + g) × (1 − Reinvestment Rate_∞)
TV = FCFF_∞ / (WACC − g)

Default g = 3.0%. The DCF enforces WACC − g ≥ 2.0 percentage points to reduce terminal-value explosion. In explicit CapEx mode, terminal value instead grows the final explicit FCFF consistently.

4

Equity Bridge — Intrinsic Value Per Share

Enterprise value is the sum of discounted FCFFs plus the discounted terminal value. Equity value subtracts all non-equity claims and is divided by diluted shares outstanding.

Equity Bridge EV = Σ PV(FCFF_t) + PV(TV)
Equity Value = EV − Net Debt − Minority Interest − Preferred Stock
IVPS = Equity Value / Diluted Shares Outstanding

Market Benchmark — EV/EBITDA

The EV/EBITDA check applies a sector benchmark multiple to the company's current-year EBITDA to derive a market-implied enterprise value. Because the multiple is anchored to observed market pricing, this is a relative benchmark—not an intrinsic model—and carries no weight in the headline value.

EV/EBITDA Benchmark-Implied Value EBITDA = Revenue × EBITDA Margin Target
EV = EBITDA × Target Multiple
Implied value per share = (EV − Net Debt − Minority Interest − Preferred Stock) / Shares Outstanding

The target starts from a sector-median benchmark rather than the company's own market multiple, avoiding a tautological result. It remains user-adjustable and is displayed separately as a market-multiple check.

Primary Model — Dividend Discount Model (DDM)

The DDM is the 100%-weighted primary for companies routed to the dividend framework, including qualifying Consumer Defensive and Utility businesses. Dividends are projected over a 10-year explicit forecast period, discounted at the cost of equity, and a Gordon Growth terminal value is added. REITs use a separate FFO-anchored DDM with dividend-coverage guards.

Sustainable Growth Rate g = ROE × Retention Ratio = ROE × (1 − Payout Ratio)

Dividend Projection (Stage 1 — 10 years) EPS_t = EPS_t−1 × (1 + g)
DPS_t = EPS_t × Payout Ratio

EPS normalisation: if trailing EPS ≤ 0 (restructuring year, one-time charges) and BVPS > 0, the model substitutes EPS = BVPS × ROE as a normalised earnings base. This prevents the dividend stream from collapsing to zero in loss years.
Analyst EPS anchors are used for the covered near-term years when available; a user-supplied staged dividend-growth schedule can override the mechanical sustainable-growth path year by year.

Terminal Value & IVPS TV = DPS_n × (1 + TGR) / (Ke − TGR)
IVPS = Σ DPS_t / (1 + Ke)^t + TV / (1 + Ke)ⁿ

Key insight — ROE vs. Cost of Equity: Growth creates value only if ROE > Ke. A company with ROE < Ke that pays out more earnings (higher payout ratio) is actually worth more under this model — the market is better served by returning capital than reinvesting at below-hurdle returns.

Cross-Check — Justified P/B Ratio (P/B + ROE)

The justified P/B model derives the fair price-to-book multiple from the spread between return on equity, cost of equity, and sustainable growth. It is displayed at zero weight beside DDM and bank Excess Returns routes, providing an independent balance-sheet cross-check without changing the headline intrinsic value.

Justified P/B Multiple P/B_justified = (ROE − g) / (Ke − g)

g = long-run terminal growth assumption.
If ROE = Ke, P/B justified = 1.0 → the stock is worth exactly book value.
Value above book is created only by sustained excess returns on equity (ROE > Ke).

Intrinsic Value Per Share IVPS = P/B_justified × Book Value Per Share

Primary Model — Excess Returns (Banks & Financials)

For financial institutions, free cash flow to the firm (FCFF) is ill-defined because debt is an operational input, not just a financing choice. IntrinsicIQ therefore uses a pure Excess Returns (Residual Income) model anchored to tangible book value per share and the spread between ROTCE and cost of equity.

The Excess Returns model carries 100% of the headline value for the bank route. P/B+ROE is surfaced independently at zero weight as a balance-sheet cross-check.

Stage Structure (10-year explicit horizon) Phase 1 (years 1–3): forward or user-set ROTCE
Phase 2 (years 4–10): ROTCE fades linearly toward the Phase-2 target
Terminal period: terminal ROTCE cannot exceed Phase-2 ROTCE

Tangible book value per share (TBVPS) is preferred; regular book value per share is used only when tangible book is unavailable.

Tangible Book Roll-Forward EPS_t = TBVPS_t−1 × ROTCE_t
Retained Earnings_t = EPS_t × Retention Rate
TBVPS_t = TBVPS_t−1 + Retained Earnings_t
ER_t = (ROTCE_t − Ke) × TBVPS_t−1

Value above tangible book is created only while ROTCE exceeds the cost of equity. Below-hurdle returns reduce the residual-income contribution.

Terminal Excess Return g = ROTCE_terminal × Retention Rate (or explicit override)
TBVPS₁₁ = TBVPS₁₀ × (1 + g)
TV_ER = (ROTCE_terminal − Ke) × TBVPS₁₁ / (Ke − g)

Terminal growth is capped and Ke must remain above g. If terminal ROTCE equals Ke, terminal excess-return value is zero.

Intrinsic Value Per Share IVPS = TBVPS₀ + Σ PV(ER_t) + PV(TV_ER)

This value is the bank route's 100%-weighted headline estimate. The separate P/B+ROE result remains visible as a zero-weight cross-check.

Why tangible book: The primary model values returns on the tangible equity base that can support banking operations. When tangible and total book are not economically comparable, the P/B+ROE check may be omitted rather than allowed to imply false agreement.

Growth Assumptions Framework

Revenue growth is the most sensitive driver of DCF value. IntrinsicIQ stores a full 10-year schedule, summarised in three editable stage bands while retaining per-year control in Projection Detail:

Years 1–3 (Near term): The first stage control moves the near-term band. Defaults use analyst revenue estimates where credible and available, with normalised historical growth as a fallback and reference.
Years 4–7 (Transition): The middle stage control covers the hand-off from explicit expectations to a mature growth profile. Analyst anchors may continue through Year 5; later years begin the fade.
Years 8–10 (Mature): The final stage control governs the mature band as growth converges toward the terminal rate.
Projection Detail: Every forecast year remains individually editable, so the three stage controls are a concise interface—not a limit on the underlying schedule.
Terminal (Perpetuity): Gordon Growth terminal value. Default 3.0%; the DCF clamps the rate as needed to preserve a 2.0 percentage-point spread below WACC.

The historical CAGR reference is computed geometrically across available reporting years rather than as a simple point-to-point change, reducing distortion from cyclical peaks and troughs.

Data Freshness — TTM from Quarterly Statements

Statement and market inputs are sourced primarily through Financial Modeling Prep (FMP). Key income statement and cash flow inputs prefer Trailing Twelve Months (TTM) calculated from the four most recent quarterly filings, falling back to the latest annual filing when quarterly data is unavailable. This keeps the model closer to current business conditions than a prior-year annual report alone.

Input	Method
Revenue	Sum of 4 most recent quarterly periods
EBITDA	Sum of quarterly EBITDA; latest annual FMP statement when quarterly data is unavailable
Depreciation & Amortisation	TTM sum from quarterly cash flow statement
Capital Expenditure	TTM sum from quarterly cash flow statement
Tax rate	Reported effective rate when usable; domicile statutory rate fallback, then 21% default
Interest expense	TTM sum from quarterly income statement
Minority interest / Preferred stock	Most recent quarterly balance sheet

Monte Carlo Simulation

The Monte Carlo module runs 1,000 trials against the company's routed valuation method. Sampled drivers are model-specific: DCF varies discount rate, terminal growth, margin, and revenue growth; DDM varies cost of equity, dividend growth, payout, and terminal growth; bank, REIT, and alternative- manager routes perturb their own economic levers. Each successful trial records the resulting IVPS to form a probability distribution.

DCF example driver	Distribution	Standard Deviation
WACC	Correlated normal, centred on base WACC	max(WACC × 15%, 1.0%)
Terminal Growth Rate	Correlated normal, centred on base TGR	0.40%
EBIT Margin	Normal, centred on base margin	max(Margin × 15%, 2.0%)
Revenue Growth Y1–Y5	Normal perturbations with uncertainty decaying by year	Y1 σ = max(Growth × 25%, 2.5%); × 1.0 / .8 / .6 / .4 / .2

DCF WACC and terminal growth share a rate factor by default rather than being sampled independently. Draws are clipped to model bounds; where the discount rate–growth relationship applies, terminal growth is clamped below the sampled discount rate instead of discarding narrow-spread trials. Non-finite, negative, failed, or million-dollar-plus outputs are excluded. The result reports P10, P25, P50, P75, P90, mean, standard deviation, and prob_undervalued—the fraction of valid trials whose IVPS exceeds the current market price.

On Model Uncertainty

Model outputs are probabilistic estimates, not predictions. Intrinsic value is not an observable quantity. It is a model-dependent estimate that changes when assumptions change. The P50 Monte Carlo output is not "the answer" — it is the median of a distribution of possible answers under a specific set of distributional assumptions.

The purpose of IntrinsicIQ is not to produce a verdict. It is to make the structure of a valuation argument transparent enough to be challenged, adjusted, and improved. An analyst who understands why their WACC assumption is 9% rather than 10% has learned something. One who accepts a number from a model has not.