vania-janet/multiturn-rag-retrieval-data huggingface dataset:
"An answer can be found in my book, ""A Modern Approach to Graham and Dodd Investing,"" p. 89 http://www.amazon.com/Modern-Approach-Graham-Investing-Finance/dp/0471584150/ref=sr_1_1?s=books&ie=UTF8&qid=1321628992&sr=1-1 ""If a company has no sustained cash flow over time, it has no value...If a company has positive cash flow but economic earnings are zero or less, it has a value less than book value and is a wasting asset. There is enough cash to pay interim dividends, bu the net present value of the dividend stream is less than book value."" A company with a stock trading below book value is believed to be ""impaired,"" perhaps because assets are overstated. Depending on the situation, it may or may not be a bankruptcy candidate."
Aside of the other (mostly valid) answers, share price is the most common method of valuating the company.  Here is a bogus example that will help you understand the general point: Now, suppose that Company A wants to borrow $20 Million from a bank... Not a chance. Company B? Not a problem. Same situation when trying to raise new funds for the market or when trying to sell the company or to acquire another
"It's not a ponzi scheme, and it does create value. I think you are confusing ""creating value"" and ""producing something"". The stock market does create value, but not in the same way as Toyota creates value by making a car. The stock market does not produce anything. The main way money enters the stock market is through investors investing and taking money out.   The only other cash flow is in through dividends and out when businesses go public.  &  The stock market goes up only when more people invest in it. Although the stock market keeps tabs on Businesses, the profits of Businesses do not actually flow into the Stock Market. Earnings are the in-flow that you are missing here. Business profits DO flow back into the stock market through earnings and dividends. Think about a private company: if it has $100,000 in profits for the year then the company keeps $100,000, but if that same company is publicly traded with  100,000 shares outstanding then, all else being equal, each of those shares went up by $1. When you buy stock, it is claimed that you own a small portion of the company. This statement has no backing, as you cannot exchange your stock for the company's assets. You can't go to an Apple store and try to pay with a stock certificate, but that doesn't mean the certificate doesn't have value. Using your agriculture example, you wouldn't be able to pay with a basket of tomatoes either. You wouldn't even be able to pay with a lump of gold! We used to do that. It was called the barter system.  Companies also do buy shares back from the market using company cash. Although they usually do it through clearing-houses that are capable of moving blocks of 1,000 shares at a time."
Imagine a poorly run store in the middle of downtown Manhattan. It has been in the family for a 100 years but the current generation is incompetent regarding running a business. The store is worthless because it is losing money, but the land it is sitting on is worth millions.  So yes an asset of the company can be worth more than the entire company.  What one would pay for the rights to the land, vs the entire company are not equal.
"This is an excellent question, one that I've pondered before as well. Here's how I've reconciled it in my mind. Why should we agree that a stock is worth anything? After all, if I purchase a share of said company, I own some small percentage of all of its assets, like land, capital equipment, accounts receivable, cash and securities holdings, etc., as others have pointed out. Notionally, that seems like it should be ""worth"" something. However, that doesn't give me the right to lay claim to them at will, as I'm just a (very small) minority shareholder. The old adage says that ""something is only worth what someone is willing to pay you for it."" That share of stock doesn't actually give me any liquid control over the company's assets, so why should someone else be willing to pay me something for it? As you noted, one reason why a stock might be attractive to someone else is as a (potentially tax-advantaged) revenue stream via dividends. Especially in this low-interest-rate environment, this might well exceed that which I might obtain in the bond market. The payment of income to the investor is one way that a stock might have some ""inherent value"" that is attractive to investors. As you asked, though, what if the stock doesn't pay dividends? As a small shareholder, what's in it for me? Without any dividend payments, there's no regular method of receiving my invested capital back, so why should I, or anyone else, be willing to purchase the stock to begin with? I can think of a couple reasons: Expectation of a future dividend. You may believe that at some point in the future, the company will begin to pay a dividend to investors. Dividends are paid as a percentage of a company's total profits, so it may make sense to purchase the stock now, while there is no dividend, banking on growth during the no-dividend period that will result in even higher capital returns later. This kind of skirts your question: a non-dividend-paying stock might be worth something because it might turn into a dividend-paying stock in the future.
"It has semantic value (because we culturally believe gold is valuable).  There is a very important point here.  Gold and many other coin metals. This ""semantic value"" is enshrined in law through the special tax status of coin metals.  You can buy a kilo of gold and not pay sales tax.  You can't buy a kilo of iron or tin and do the same.  This is the important part because investors shouldn't care about semantics. I read that the taxable status varies by state or nation, so you need to be very careful.  It's possible to evade taxes without realizing it.  It also doesn't necessarily exempt you from the form of gold.  An ingot should be tax exempt.  A collector's coin may or may not be, depending on your local laws and the difference between the value of the weight of the gold, and the value of the form of the coin."
"If you are looking for numerical metrics I think the following are popular: Price/Earnings (P/E) - You mentioned this very popular one in your question. There are different P/E ratios - forward (essentially an estimate of future earnings by management), trailing, etc.. I think of the P/E as a quick way to grade a company's income statement (i.e: How much does the stock cost verusus the amount of earnings being generated on a per share basis?). Some caution must be taken when looking at the P/E ratio. Earnings can be ""massaged"" by the company. Revenue can be moved between quarters, assets can be depreciated at different rates, residual value of assets can be adjusted, etc.. Knowing this, the P/E ratio alone doesn't help me determine whether or not a stock is cheap. In general, I think an affordable stock is one whose P/E is under 15. Price/Book - I look at the Price/Book as a quick way to grade a company's balance sheet. The book value of a company is the amount of cash that would be left if everything the company owned was sold and all debts paid (i.e. the company's net worth). The cash is then divided amoung the outstanding shares and the Price/Book can be computed. If a company had a price/book under 1.0 then theoretically you could purchase the stock, the company could be liquidated, and you would end up with more money then what you paid for the stock. This ratio attempts to answer: ""How much does the stock cost based on the net worth of the company?"" Again, this ratio can be ""massaged"" by the company. Asset values have to be estimated based on current market values (think about trying to determine how much a company's building is worth) unless, of course, mark-to-market is suspended. This involves some estimating. Again, I don't use this value alone in determing whether or not a stock is cheap. I consider a price/book value under 10 a good number.
There's actual value and value that comes from potential for growth. I would imagine that their fundamentals are stronger, they have more advertising revenue than 2 years ago but their vision for the future and potential value is lower. So it's up to you the investor in the market to decide where you value it and to either buy sell or sit out
Does your enterprise standout to regional people through [Local Business Listing](http://come2ourdeals.com.au)? Is your enterprise reliant upon the regional location for your revenue? If you’re not using enterprise outcomes as an additional promotion to reach people then you are missing out on a significant regional promotion.
&gt; IMO, the nuts and bolts of valuations aren't the hardest part of finance.  No one going into the operational managing roles at a PE firm is there because of their experience in valuations.  There are a multitude of roles and improvement decisions are usually backed by a team of ex-consultants rather than ex-IBD guys (team doing the valuations and relevant decisions based on valuations).
Buying back shares is an indication that the company does not believe that there is justification to invest in production, employee training, or technology. In the end, what it mostly does is pump up the share price, which very directly pumps up the value of share-based compensation that the CEO has.  On mergers and acquisitions, I don't have the time to look for the source right now, but I've read a few reports that showed that the vast majority of mergers and acquisitions actually erodes the value when compared to the two separate companies. They cite reasons like overblown expectations, clash in company cultures, and manipulations up top as a reason to do this. On paper, they all sound great, but these are very dificult things to operationalise which only the very best management teams manage to work out.  The above parties are part of the real economy as long as they are companies that produce goods or services, which is often the case. It contrasts with the paper economy which is the world of bonds, hedge funds, share markets, and commodity markets. The money moving around in this world seldom makes a diference to anybody but the directly involved. The share market is a classic example of this. Although the value of stocks may be high, most people who own the stocks don't actually have more money to spend, unless, obviously they sell the shares. The value is on paper until it is transacted, and can collapse like a house of cards.   The real economy is much more stable and resiliant, and has a large impact on the majority of the population. It won't vary hugely from one month to the next like the stock market can.  I don't have any educaton in economics other than curiosity on how these things work. I read Krugman's blog and generally google any term or concept that tickles my fancy. I also partake in quite a few discussions here on reddit that frequently prompt me to go investiage some more. I don't proport to be some sort of expert, but I do have concise ideas of how things work, and have a very strong bias of looking at evidence and fact-based postulations rather than ideology.
"I would differentiate between pricing and valuation a bit more:  Valuation is the result of investment analysis and the result of coming up with a fair value for a company and its shares; this is done usually by equity analysts. I have never heard about pricing a security in this context. Pricing would indicate that the price of a product or security is ""set"" by someone (i.e. a car manufacturer sets the prices of its new cars). The price of a security however is not set by an analyst or an institution, it is solely set by the stock market (perhaps based on the valuations of different analysts).  There is only one exception to this: pricing an IPO before its shares are actually traded on an exchange. In this case the underwriting banks set the price (based on the valuation) at which the shares are distributed."
"&gt; can I use venture like that in a financial context, or does it refer specifically to venture capital? Yes, any business is a ""venture"" so to speak. &gt; so they would receive a smaller return, yes? POSSIBLY yes. Mezzanine investors are, well, ""middle"" investors. They're beyond seed and venture capital, but before more ""late-stage"" private investment. That doesn't *necessarily* mean they're ""after a seed or venture capital investment."" It can mean that, or it can simply mean the business is a little more advanced than a pure idea, or pre-revenue, etc. Let's say a company is pre-destined to get to $100m in value IF it can secure funding. Naturally, later investors will have a smaller return. Of course, private investments are generally for smaller, younger companies, and thus are more risky, so an investor can still *lose* value in a private equity investment. &gt; Is mezzanine investing particularly profitable? Yes, absolutely. You have to understand, with investments in private equity, firms and individuals are often looking for a *multiple* of their investment (i.e. if an investor invests $1m, they expect $2m, $3m, etc. back). This is not necessarily for all levels of private equity, but many levels will attempt this. Generally the idea (as far as I'm aware) is a 20% IRR (which means that generally, the investment grows by 20% *compounding* yearly). &gt; Secondly, why is dilution so important further down the road? Is it to do with valuation? Absolutely. Let's think of our example earlier, where you, me, and Joe each own 33% at $300 total value. If suddenly another company wants to buy ALL of our equity for $600, then we're all pretty happy. Each of us will get $200. HOWEVER, let's say Joe hadn't come along. If that other company *then* made an offer for $600, we'd both get *$300* for the company.
Stock prices reflect future expectations of large groups of people, and may not be directly linked to traditional valuations for a number of reasons (not definitive). For example, a service like Twitter is so popular that even though it has no significant revenue and loses money, people are simply betting that it is deeply embedded enough that it will eventually find some way to make money. You can also see a number of cases of IPOs of various types of companies that do not even have a revenue model at all. Also, if there is rapid sales growth in A but B sales are flat, no one is likely to expect future profit growth in B such that the valuation will remain steady. If sales in A are accelerating, there may be anticipation that future profits will be high. Sometimes there are also other reasons, such as if A owns valuable proprietary assets, that will hold the values up. However, more information about these companies' financials is really needed in order to understand why this would be the case.
"&gt; A) The base value from infrastructure is derived on a per-capita basis. It is a ""fixed cost"" as opposed to a variable one. In other words, roads are just as useful to me as they are to you regardless of my net worth. A tank, a missile, a police officer protects me the same as it does anyone else. A trucking company making millions of dollars a year on US highways derives more value from the roads than I do. Honestly anyone who says that they don't need to pay for roads because of their level of benefit from them is limited and I will call you a liar. Unless you are living in a box in the woods 100s of miles away from civilization you absolutely rely on the road system even if you never set foot on it. Though at the same time a national highway system was something no business would ever make as it derives too little value for an individual business for the scale required to reach enough of the market. This is a perfect example of a project that is good for society but won't see the tab picked up by business voluntarily. &gt; B) As a percentage of income, infrastructure is far more valuable to low-income individuals than high-income individuals. A simple example: if I have $5M in net worth, I can invest it in the stock market and stay home. If you don't have that option, you need to go to work and that will likely require roads. I won't be taking unemployment benefits, but you are far more likely to. And so on. It is foolish to assume your market value increases do not rely on infrastructure to happen. 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.
No. The above calculation does not hold good. When financial statements are prepared they are prepared on a going concern basis, i.e. a business will run normally in the foreseeable future. Valuation of assets and liabilities is done according to this principle. When a bankruptcy takes places or a business closes down, immediately the valuation method will change. For assets, the realizable value will be more relevant. For example, if you hold 100 computers, in an normal situation, they will depreciated at the normal rate. Every year, some portion of the cost is written off as depreciation. When you actually go to sell these computers you are likely to realize much less than what is shown in the statement. Similarly, for a building, the actual realizable value may be more. For liabilities, they tend to increase in such situation. Hence just a plain computation can give you a very broad idea but the actual figure may be different.
I think a business that pays as little as possible for quality results is successful. Business isn't out to make everyone's lives better, it's out to make a profit. Generally a better paid work force is a more productive work force, but expecting companies to care about people for any other reason than for their own economic benefit is naive.
Not sure either :( I see you're a student too, do you know of any other subreddit or forum where I could ask for advice?  Tbf right now I'm just compiling a list of papers about valuation of loss firms or intangibles and I'll read them tomorrow. I'd like to find a model to test too.  Here's what I got (I'm still only just scratching the surface): https://we.tl/UaXmvSdwiF  I'm trying to get some stuff on loss firms valuation, intangibles impact, and discrepancies between market expectations and traditional models valuation.
"they are purchasing the company"" is this correct? Yes this is correct. If I purchase a ""company"" here in Australia, I also purchase its assets and liabilities Yes that is correct. How can it be NIL? How can it be legal? The value of shares [or shareholders] is Assets - liabilities. Generally a healthy company has Assets that are greater than its liabilities and hence the company has value and shareholders have value of the shares. In case of TEN; the company has more liabilities; even after all assets are sold off; there is not enough money left out to pay all the creditors. Hence the company is in Administration. i.e. it is now being managed by Regulated Australian authority. The job of the administrator is to find out suitable buyers so that most of the creditors are paid off and if there is surplus pay off the shareholder or arrive at a suitable deal. In case of TEN; the liabilities are so large that no one is ready to buy the company and the deal of CBS will also mean nothing gets paid to existing shareholders as the value is negative [as the company is separate legal entity, they can't recover the negative from shareholders]. Even the current creditors may not be paid in full and may get a pro-rated due and may lose some money."
There are two ways that an asset can generate value.  One is that the asset generates some revenue (e.g. you buy a house for $100,000 and rent it out for $1,000 per month) and the second way is that the asset appreciates (e.g you buy a house for $100,000, you don't rent it out and 5 years later you sell it for $200,000).  Stocks are the same.
"I might as well add my 2 cents here.  Further to what robotik said, the intrinsic value is essentially the ""value contained within itself."" As an entity, an item, an object - anything for that matter, the intrinsic value is what someone can benefit from it.   In reference to the Water paradox asked by Yorn; my perspective is that water has an ""positive"" intrinsic value in either case because the intrinsic value of something is independent of who it affects and how it affects anyone. If humans were a species that was allergic to water and caught fire upon touching it - water would be considered to have a very ""negative"" intrinsic value.  It doesn't matter the second person is drowning in water, the fact that water is an essential part of life - the intrinsic value of it is positive and unchanged. Perhaps the ""situational value"" would be a more subjective measure?"
"Accounts track value: at any given time, a given account will have a given value. The type of account indicates what the value represents. Roughly: On a balance sheet (a listing of accounts and their values at a given point in time), there is typically only one equity account, representing net worth, I don't know much about GNUCash, though. Income and expenses accounts do not go on the balance sheet, but to find out more, either someone else or the GNUCash manual will have to describe how they work in detail. Equity is more similar to a liability than to assets. The equation Assets = Equity + Liabilities should always hold; you can think of assets as being ""what my stuff is worth"" and equity and liabilities together as being ""who owns it."" The part other people own is liability, and the part you own is equity. See balance sheet, accounting equation, and double-entry bookkeeping for more information. (A corporate balance sheet might actually have more than one equity entry. The purpose of the breakdown is to show how much of their net worth came from investors and how much was earned. That's only relevant if you're trying to assess how a company has performed to date; it's not important for a family's finances.)"
&gt; I still think there should be some kind of rule in place that an IPO has to reflect a companies actual value.   The value of a company is it's price. Really hard to determine that beforehand. ∑(assets) doesn't determine the value of a company (otherwise most software companies would be near valueless)
I believe @Dilip addressed your question alread, I am going to focus on your second question: What are the criteria one should use for estimating the worth of the   situation? The criteria are:  I hope this helps.
IP could just be patents that have definite lives that a number of businesses are benefiting from. IP is a bit of a mess to get into for various reasons and I'm trying to stay focused in this post. Some reasons for complexity include: the valuation, life of the asset, benefit of use, is the entity even really using it?, etc. I would imagine this is where companies get away with A LOT. Technology fees can be software licenses (Windows ain't free). Depreciation can be capitalized proprietary software. I'm running out of gas and wanted to comment about OP's question. I don't think SLA's and Internal billing services are a matter of directly increasing efficiency, more a matter of not creating inefficiencies. Going anecdotal, anywhere I've worked, the best person to do the job has been whoever's closest to the work. It wouldn't make much sense to me to have accounting gather up internal support during the VERY time sensitive month-end close for something like one division's trade magazine that another division placed an ad in. On the other hand, I think the allocation of copy expenses on an activity basis is an absolute waste of time. It all depends on the specific transaction in question. Great post bctich. Don't mean to detract, just looking to help others understand.