How do you measure the real worth of a company?

This dilemma has been following me for quite some time now. It is, how do you tell how much is the real worth of a company? Everyone can understand that a company has worth and that we should always buy a company based on its intrinsic value. But then, the next question comes, what is its intrinsic value and how do we find it?

Going back to basics, all companies has equity. When we are buying a company, we are actually buying its equity. But the price we are paying is not necessarily the worth of its equity. More often than not, we pay more for its equity than its worth. Take this situation, a company's equity is worth 10 dollars but we are paying 15 dollars for it. Is the 5 dollars extra premium or what the company's equity is really worth?

When I say what it is really worth, the idea I get in my head is all the profits of the company that it will earn until infinity discounted back to the present to get a value of what we should pay today.

To learn how to value a company, learning how to value bonds certainly helps. I have learnt that money has a time value. That is, money today is worth more than money tomorrow. That is why we don't pay for bonds at its face value but we pay for bonds at its present value. Its present value is the discounted value of its face value. I hope that makes sense, because you wouldn't want to pay 10 dollars today for a 10 dollars you will get in 100 days time.

For companies it gets a little more complex, because companies don't pay a fix dividend and can borrow to take on debt. That makes it more complicated. And there is also number of shares at different times of a company's life. What we really need to construct is a model that can value a company based on what it is really worth.

I still haven't yet hit the nail on the notion of what a company is really worth. Right now out there in the market, analysts are using popular valuation models ranging from simple ones such as Dividend streams, PE valuation to more complex ones such as Discounted Cash Flow and Relative Multiples. Are those models really what they say they can achieve? That is, find the true worth of a company.

At the time of writing, I am still a novice to this topic. But I publicly declare that I will try my very best to pin this matter down to its nail. I will find out the true way and best way to value a company's shares. Something tells me it is not going to be that difficult. May God help me. Good luck to all you investors out there in the market. Remember buy below intrinsic value.