Market Value question
Hi community,
would be awesome if someone knows answers to the following:
1. market cap is $6,290 and [assets - all liabilities - preferred shares - minority interest] is $3,173. So, does this mean that investors are expecting (6,290-3,173)/3,173=98.2% return? if yes, within what time period? If not, what does the discrepancy between market value and book value mean?
2. Sometimes I hear how some people are saying things like "currently there is a difference between public and private multiples". What does this mean?
3. If I want to avoid using Income Statement, but focus on Cash instead. Does this mean that Market Cap is irrelevant in my analysis, since it is tied to earnings? Does this mean that market price and all multiples based on price are irrelevant as well, and the only way is to DCF/NAV and such?
Thank you very much, I don't have anyone else to ask but WSO...
I'll take a stab.
No, it does not mean that the investors are expecting a 98.2%. It is because the book value of assets/liabilities is not necessarily their fair value and their may be intangible assets/liabilities (patents, brands, etc) that do not show up but create value for the company. I'll give you an example - the book assets of a company like Twitter composes of some cash, lots of small equipment (computers, tables, etc), receivables, and a few other things. The value of the book assets are insignificant to other "assets" of the business (talented workforce, brand, etc.) that are expected to create value. Remember, book value is determined by accounting rules.
Not sure what this refers to. Maybe it refers to the multiples of public companies vs multiples of M&A transactions?
Not sure what you are going for here. You can still use a DCF to get to market cap by calculating free cash flows to equity (which included principal and interest payments to debt). Maybe someone else can help you here.
Thanks guys, just finished Margin of Safety by Klarman:
Thanks for taking your time to help me out. my #1 question is so effing dumb...
Just look at Sell-Side estimates to calculate the growth rate investors are expecting.
[quote=KarateBoy]
naivekid:Thanks guys, just finished Margin of Safety by Klarman:
1. I confused book value with the liquidation value
2. private multiples are basically precedent transactions
3. I guess what I am asking is: how to measure an expected rate of return that investors are looking at when they are buying stocks. Intuitively it must be based on the price. I am just uncertain about the denominator.
Thanks for taking your time to help me out. my #1 question is so effing dumb...
Just look at Sell-Side estimates to calculate the growth rate investors are expecting.
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please ignore #1.
Thanks, man. That's exactly what I am looking at.
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