Definition
Fair value represents the rational price of an asset given available information. In accounting (ASC 820/IFRS 13), it is measured using a hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs), and Level 3 (unobservable inputs/models). In investing, fair value is synonymous with intrinsic value—the theoretical price justified by fundamentals.
lightbulb Example
A stock's fair value is estimated at $65 using multiple methodologies. It currently trades at $58 (11% discount). This slight discount may not provide sufficient margin of safety for a high-uncertainty investment.
verified_user Key Points
- Accounting definition follows ASC 820 hierarchy
- Investing definition aligns with intrinsic value
- Level 3 (model-based) fair values have most uncertainty
- Mark-to-market uses fair value for reporting