vania-janet/multiturn-rag-retrieval-data huggingface dataset:
The idea here is to get an idea of how to value each business and thus normalize how highly prized is each dollar that a company makes.  While some companies may make millions and others make billions, how does one put these in proper context?  One way is to consider a dollar in earnings for the company.  How does a dollar in earnings for Google compare to a dollar for Coca-cola for example?  Some companies may be valued much higher than others and this is a way to see that as share price alone can be rather misleading since some companies can have millions of shares outstanding and split the shares to keep the share price in a certain range. Thus the idea isn't that an investor is paying for a dollar of earnings but rather how is that perceived as some companies may not have earnings and yet still be traded as start-ups and other companies may be running at a loss and thus the P/E isn't even meaningful in this case. Assuming everything but the P/E is the same, the lower P/E would represent a greater value in a sense, yes.  However, earnings growth rate can account for higher P/Es for some companies as if a company is expected to grow at 40% for a few years it may have a higher P/E than a company growing earnings at 5% for example.
You're indeed right, this cannot be answered affirmatively. I will try, without going too deep in details, to brush a shallow portrait In its simplest form, a going concern company could be valued by the present value of a growing perpetuity (Cash Flow/(Required return - growth)), assuming compounding perpetual growth. That's a massive assumption for a yet to turn a dime company. That's why comparable transactions are usually used as benchmark. In this case, your PE can be thought as the inverse of a growing perpetuity, and it's size will be determined by the difference between return and growth. So when you're pre-revenue, you're basically trying to value a moonshot with everything to prove, no matter how genius the idea. Considering the high levels of financial risks due to failure, VCs will require biblical levels of returns (50% to 90% is not unheard of). Hence why they usually leave with a good chunk of the company in seed rounds. When you've had a few sales, you got to know your customer and you've tested the markets, your direction gets clearer and your prospects improve. Risks moves down a notch and the next round of financing will be at much lower rates. Your growth rate, still high but nowhere as crazy as before, can be estimated with relatively more precision. Companies turning a recurrent level of profits are the easiest to value (all else being equal). The financial mathematics are more appropriate now, and their value will be derived by current market conditions as well as comparable transactions. With unlimited resources and perfect markets, the value of the company will be the same wether the founder is at the helm or the VCs are in the place. But considering many founders need the VCs' resources to extract the value of their company and markets are imperfect, the value of the company can change significantly depending on the decisions. Hope that helps!
Sure let's say we're starting with the equity value of a public company. Fully diluted shares times market price. We add debt and subtract all cash to give us enterprise value. Calculate a multiple on that. Look what we did up there, we subtracted out all cash. The DCF approach assumes we have an operating level of cash when it calculates a value. You're saying that the DCF spits out an enterprise value. It cannot be an enterprise value if the DCF approach assumes we hold cash. We would have to subtract out an operating level of cash from the DCF concluded value to compare it apples to apples to the cashless enterprise values we derived from the market approach multiples.
"Your company actually will most likely use some sort of options pricing model, either a binomial tree or black-scholes to determine the value for their accounting and, subsequently, for their issuance and realization.  First, market value of equity will be determined. Given you're private (although ""pre-IPO could mean public tomorrow,""), this will likely revolve around a DCF and/or market approaches.  Equity value will then be compared to a cap table to create an equity waterfall, where the different classes of stock and the different options will be valued along tranches. Keep in mind there might be liquidation preferences that would make options essentially further out of the money.  As such, your formulae above do not quite work. However, as an employee, it might be difficult to determine the necessary inputs to determine value.  To estimate it, however, look for three key pieces of information:  1. Current equity value  2. Option strike price  3. Maturity for Options  If the strike is close to the current equity value, and the maturity is long enough, and you expect the company to grow, then it would look like the options have more value than not.   Equity value can be derived from enterprise value, or by directly determining it via a DCF or guideline multiples.   Reliable forecasts should come from looking at the industry, listening to what management is saying, and then your own information as an insider."
As much as paper-trading inflates value, for the most part, it is still tied to some kind of real work (or rather the expectation of) being done somewhere. That assumption of ability for a corporation to serve it's shareholders is based on the fact that companies have infrastructure needs handled and that expanding delivery to three new markets won't be hampered because the company must first complete the highway to serve these markets. The existence of infrastructure not only supports the market but allows you to exploit it. The internet here makes a great example. Prior to funding and a push by the government to standardize military and academic networks and technology as well as make microprocessors more powerful in order to stay ahead in tech race we had a mish mash of proprietary networks with very poor abilities to use them. Today we have the internet. A largely private system today however it would not exist without the involvement and funding from the government for the multiple programs that led to it's existence. &gt; C) The activities of business owners generate massive tax revenues. These far outweigh their personal utility from infrastructure. If the taxes really outweighed utility businesses would not operate in the area at all. The thing is, they don't and taxes are not preventing businesses from growing. &gt; D) Society captures the majority of individual commercial efforts (estimates vary, but typically 85%). In other words, if I generate $10.00 of value as an entrepreneur, I will realistically be able to capture only $1.50 of that. Yes but that is because unless you are doing it ALL yourself then you did not generate that $10. As a business owner you are in charge of managing resources to help generate that $10, you yourself however did not generate that $10. You had employees, and contractors, and people managing your building, payroll and yes even taxes. Every person involved in getting the product or service from idea to the door are all part of that $10. If your efforts in that co-ordination are netting you 15% of the total then you are beating the market already and I am not sure what your problem is.
"Valuation by definition is what an item is worth, not what you paid for it. Net worth should be market value for fixed assets or ""capital"" goods. I would consider this cars, real property, furniture, jewelry, appliances, tools, etc.  Everything else can be valued by liquidation value. You can use valuation guides for tax deductions as a way to guide your valuation. Insurance companies usually just pick a percentage of your home's value as a guesstimate for content value. I could see doing this as a way to guide purchase decisions for appliances, cars or the like. But if you are trying to figure out the market value of your socks and underwear, I would argue that you're doing something that's a little silly."
Ok - what's your starting point?  Are you starting with equity value and then working your way back to an enterprise value?  Then yes, you must subtract cash and add debt.  If you're doing a DCF, you don't have to make any changes to the values at the end if you're looking for an enterprise value.  If you're looking for an equity value, you would need to add cash and subtract debt.  If you're simply applying a enterprise value multiple (such as EV / EBITDA) you don't need to make any changes.  Just multiply the Company's EBITDA by the multiple in question.  Enterprise values are supposed to be capital structure independent because they are only valuing the company on metrics that occur before the impact of the Company's capital structure.
To me this sounds like a transaction, where E already owns a company worth 400k and can therefore pocket the money from D and give D 25% of the profits every year. There is nothing objective (like a piece of paper) that states the company is worth 400K. It is all about perceived value. Some investors may think it is worth something because of some knowledge they may have. Heck, the company could be worth nothing but the investor could have some sentimental value associated to it. So is it actually the case that E's company is worth 400k only AFTER the transaction? It is worth what someone pays for it when they pay for it. I repeat- the 400K valuation is subjective. In return the investor is getting 25% ownership of the product or company. The idea is that when someone has ownership, they have a vested interest in it being successful. In that case, the investor will do whatever he/she can to improve the chances of success (in addition to supplying the 100K capital). For instance, the investor will leverage their network or perhaps put more money into it in the future. Is the 100k added to the balance sheet as cash? Perhaps. It is an asset that may later be used to fund inventory (for instance). ... and would the other 300k be listed as an IP asset? No. See what I said about the valuation just being perception. Note that the above analysis doesn't apply to all Dragons Den deals. It only applies to situations where capital is exchanged for ownership in the form of equity.
There are different ways to determine the value of a company: When an entrepreneur starts a new company himself and owns 100% of the company, the Fair Market value is unknown. He has put his own money into the company, so it has a high Investment value to him, meaning he has a lot at stake in the company. The Asset value is probably less than the Investment value, meaning if he closed the company, he would lose some of the money he invested.  Now, using your example, a Venture Capitalist comes along and takes a look at the company. She believes that the company has a great future potential to make money, which means that she believes that the Intrinsic value is very high. She decides to invest $1 Million in the company for a 10% stake, and the founder agrees. The Fair Market value of the company at that moment is $10 Million. The VC believes that the Intrinsic value of the company is more than $10 Million and that she is making a good investment. The Asset value of the company just went up by $1 Million.  To answer your question, the $1 Million is not the founder's to spend on a new house. It is the company's money. However, the founder owns 90% of the company. The new capital will allow the company to buy whatever assets the company needs to meet the potential that the founder and the VC see in it, and make the company grow and earn money for the two investors.  A crooked founder could, theoretically, close down the company immediately and pocket 90% of the new cash, but there are certainly legal protections in the contract they signed when the investment was made that prevent him from doing that.
"Oh, I understand now -- we're having an absurd, meaningless conversation about an obscure theoretical point.  When you can tell me how you can determine a ""minimum cash"" level from a public company's filings, we can continue the discussion.  Otherwise, make a simplifying assumption and move on.  I misunderstood -- I thought we were actually trying to understand the difference between enterprise value and equity value / understand the implication of an enterprise value multiple."
"Umm, it depends on the transaction but a lot of transactions get done on a ""cash free / debt free"" basis.  Meaning, I'll pay you 5x EBITDA (or $500) and you deliver the company without any cash or debt subject to a ""standard"" amount of working capital.  Ultimately, you're confusing enterprise value and equity value.  The two companies may have different purchase prices (equity values) but they should have very similar enterprise values (given the hypothetical scenario you put together)."
There are a LOT of variables at play here, so with the info you've provided we can't give you an exact answer.  Generally speaking, employee options at a startup are valued by a 409a valuation (http://en.wikipedia.org/wiki/Internal_Revenue_Code_section_409A) once a year or more often.  But it's entirely possible that the company split, or took a round of funding that reduced their valuation, or any other number of things.   We'd need a good bit more information (which you may or may not have) to really answer the question.
"Value is entirely subjective to individuals.  Nothing has ""intrinsic value"".  So if humans put a lot of work into polishing a turd, it's still worthless.  But if you put half that much work into preparing a meal or building a car, your labor is actually ""productive"" because it is meeting a consumer's demand.  This is how ""productive work"" is defined in economics (at least the Austrian branch) - people are willing to voluntarily trade for the product of your labor."
"The textbook answer would be ""assets-liabilities+present discounted value of all future profit"".  A&L is usually simple (if a company has an extra $1m in cash, it's worth $1m more; if it has an extra $1m in debt, it's worth $1m less). If a company with ~0 assets and $50k in profit has a $1m valuation, then that implies that whoever makes that valuation (wants to buy at that price) really believes one of two things - either the future profit will be significantly larger than $50k (say, it's rapidly growing);  or the true worth of assets is much more - say, there's some IP/code/patents/people that have low book value but some other company would pay $1m just to get that. The point is that valuation is subjective since the key numbers in the calculations are not perfectly known by anyone who doesn't have a time machine, you can make estimates but the knowledge to make the estimates varies (some buyers/sellers have extra information), and they can be influenced by those buyers/sellers; e.g. for strategic acquisitions the value of company is significantly changed simply because someone claims they want to acquire it. And, $1m valuation for a company with $500m in profits isn't appropriate - it's appropriate only if the profits are expected to drop to zero within a couple years; a stagnant but stable company with $500m profits would be worth at least $5m and potentially much more."
This is a tough question SFun28.  Let's try and debug the metric. First, let's expand upon the notion share price is determined in an efficient market where prospective buyers and sellers have access to info on an enterprises' cash balance and they may weigh that into their decision making.  Therefore, a desirable/undesirable cash balance may raise or lower the share price, to what extent, we do not know.   We must ask How significant is cash/debt balance in determining the market price of a stock?   As you noted, we have limited info, which may decrease the weight of these account balances in our decision process. Using a materiality level of 5% of net income of operations, cash/debt may be immaterial or not considered by an investor. investors oftentimes interpret the same information differently (e.g. Microsoft's large cash balance may show they no longer have innovative ideas worth investing in, or they are well positioned to acquire innovative companies, or weather a contraction in the sector) My guess is a math mind would ignore the affect of account balances on the equity portion of the enterprise value calculation because it may not be a factor, or because the affect is subjective.
"Labor is the only thing that has value. What do you have other than your time, your abilities-- that is, your labor potential? The economy is made of *people*, not *trading*. Marx talked about this ""inverted world"" of capitalism, where a strange focus is given to exchange value, as opposed to use value. Expending and comprehension of human effort is all that we have; as late capitalism begins to collapses and post-capitalism rises (as in the startup world and some other segments, where laborers have a decision-making stake in their company and work for equity/salary as opposed to hourly slavery (i.e. they ""sieze the means of productions"" in modern terms)), we realize our maps are now ""worth"" more than the territory they represent."
Adding assets (equity) and liabilities (debt) never gives you anything useful. The value of a company is its assets (including equity) minus its liabilities (including debt). However this is a purely theoretical calculation. In the real world things are much more complicated, and this isn't going to give you a good idea of much a company's shares are worth in the real world
"A company's valuation includes its assets, in addition to projected earnings. Aside from the obvious issue that ""projected earnings"" can be wildly inaccurate or speculative (as in the case of startups and fast-moving industries like technology), a company's assets are not necessarily tied to the market the company is in. For the sake of illustration, say the government were to ban fast food tomorrow, and the market for that were to go all the way to zero.  McDonald's would still have almost 30 billion dollars worth of real estate holdings that would surely make the company worth something, even though it would have to stop selling its products. Similarly, Apple is sitting on approximately $200 billion dollars in cash and securities in overseas subsidiaries.  Even if they never make another cent selling iPhones and such, the company is still worth a lot because of those holdings. ""Corporate raiders"" back in the 70's and 80's made massive personal fortunes exploiting this disconnect in undervalued companies that had more assets than their market cap, by getting enough ownership to liquidate the company's assets.  Oliver Stone even made a movie about the phenomenon. So yes, it's certainly possible for a company to be worth more than the size of the market for its products."
This is a question of how does someone value a business.   Typically, it is some function of how much the company owns, how much the company owes, how risky is the company's business, and how much the company makes in profit. For example if a company (or investment) make $100/year, every year no matter what, how much would you pay for that?   If you pay $1,000 you'll make 10% each year on your investment.  Is that a good enough return?   If you think the risk of the company requires a 20% payoff, you shouldn't pay more than $500 for the company.
Book value = sell all assets and liquidate company . Then it's the value of company on book. Price = the value at which it's share gets bought or sold between investors.  If price to book value is less than one, it shows that an 100$ book value company is being traded at 99$ or below. At cheaper than actually theoretical price. Now say a company has a production plant . Situated at the most costliest real estate . Yet the company's valuation is based upon what it produces, how much orders it has etc while real estate value upon which plant is built stays in book while real investors don't take that into account (to an extend). A construction company might own a huge real estate inventory. However it might not be having enough cash flow to sustain monthly expense. In this scenario , for survival,i the company might have to sell its real estate at discount. And market investors are fox who  could smell trouble and bring price way below the book value  Hope it helps
Right, I understand minority interest but it is typically reported as a positive under liabilities instead of a negative. For example, when you are calculating the enterprise value of a company, you add back in the minority interest.    Enterprise Value= Market Share +Pref Equity + Min Interest+ Total Debt - Cash and ST Equivalents.    EV is used to quantify the total price of a company's worth. If you have negative Min Interest on your books, that will make your EV less than it should be, creating an incorrect valuation.   This just doesn't make any sense to me. Does it mean that the subsidiary that they had a stake in had a negative earning?
The value of the company is ill-defined until it actually has some assets and/or product. You give the investors whatever equity stakes you and they negotiate as appropriate for their investment based on how convinced they are by your plan and how badly you need their money.
You can think of a free cash flow as dividends from operations. FCF = cash from operations - investment in operations. The present value of these cash flows into the future is the value of the firm (DCF is very much like the dividend discount model).   Now why does a DCF produce enterprise value and not equity value? Because a DCF values the firm's operating assets. To find the equity value, you use the accounting relation: assets = liabilities + equity (or in financial terms net operating assets = net financial obligations + common stockholders equity). This means you take away net debt from the value produced by the DCF to find equity.  Now all your excess cash is netted off against your financial obligations (debt) to find the net debt. Cash used for day to day operations is an operating asset and should be treated as such, operating cash should not deducted from value of assets when finding the value of equity.  At least that's what they're teaching at university now (i'm a uni student who's just finished my business valuation subject).
This is fine, but I'd probably spend a moment introducing WACC and it's estimation. It's also useful to link up the enterprise value to share price, so just also mentioning the debt subtraction to get equity value and division by shares for price.  Keep in mind you're usually given like a minute to answer this, so you can afford to be a bit more detailed in some parts.
The intrinsic value of a company is based on their profits year on year along with their expect future growth. A company may be posting losses, but if the market determines there's any chance they will turn a profit one day, or be a takeover target, it assigns value to those shares. In normal times, you'll observe a certain P/E range. Price to earning ratio is a simple way to say the I will pay X$ for a dollar's worth of earnings. A company that's in a flat market and not growing may command a P/E of only 10. Another company that's expanding their products and increasing market share may see a 20 P/E. Both P/Es are right for the type of company involved.