Stock Valuation – How To Value A Company

Stock Valuation – The Relationship Between A Company’s Stock Price and Cash

In another article titled Companies To Invest In, I made the point that, at its core, a well-run company is simply a money making machine.  That concept – that the value of a company is ultimately tied to cash – is one of the keys to understanding how to value a company and it’s relationship stock price.  Stock valuation are great to get quick snapshot of a company’s value.  I’ll illustrate this point with a simple example, and then build on it in ensuing articles.

How To Value A Company – Cash Per Share Example 1

If there were a company that had $1,000 in cash with 100 shares of stock outstanding then you could calculate the value of each share of stock as follows.

Stock Valuation Cash Per Share Example

How To Value A Company – Acquiring 20% Ownership Example 2

If that were the case and you wanted to own 20% of the company then how much stock would you have to buy, and how much would it cost?  The answer is that you would have to pay a total of $200 for 20 shares of stock, which can be calculated as follows.

Stock Valuation Ownership Example

How To Value A Company – 10:1 Stock Split Example 3

What if the company did a 10 for 1 stock split, meaning instead of having 100 shares outstanding, it had 1,000 shares outstanding?  Would that change the value of the company?  The answer is no.  The company’s only asset is $1,000 of cash, and no amount of stock splitting (or combining) can change that.  However, by doing a 10 for 1 stock split the value of each individual share is diluted, going from $10 to $1 per share.  So in summary, a stock split affects the value of each share of stock, not the value of the company itself, which can be illustrated as follows.

 

Stock Valuation Stock Split Example

 

Now, what if our little company went public and was traded on the New York Stock Exchange?  Wow, that’s big time!  Wouldn’t that would boost its stock price above the $1 it’s now trading at after the stock split?  Not at all!  The stock could be traded on the moon, and that still wouldn’t alter the fact that the total assets of the company are worth $1,000, making the value of each of those 1,000 shares equal to $1.

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How To Value A Company Using The Terminal Valuation Method

But wait, isn’t just focusing on a company’s cash overly simplistic?  After all, there’s no company of any size or consequence whose only asset is cash.  While that may be true, at the end of the day, determining how to value a company is ultimately measured in money (or cash) – nothing else.  This is known as the terminal value of a company.

The application of this concept is known as the Terminal Valuation Method.  To illustrate how it works, say a company’s stock price is trading at a value that suggests the total worth of the company is $10,000,000.[1]  How can you tell if this stock valuation is reasonable?  One way to go about it is by to pretending that the company sold everything off: its inventory, furniture and fixtures, real property, and so on, until it converted all of its assets to cash.  After going through exercise you estimate that upon liquidating all of its assets and settling all of its outstanding debts (or “liabilities”) that the company would end up with $4,000,000.

“It’s Important To Note Stock Valuation Can Vary Greatly Depending On A Number Of Factors Such As: Industry, Maturity Level of Company, Ect.”

What…$4,000,000?  Didn’t we say that the value of the company’s stock suggested that it was worth $10,000,000?  Does this mean that the company’s stock price is vastly over inflated relative to its true worth? Perhaps, but not necessarily.  For example, aside from tangible assets (assets that you can touch) that could be converted into cash, an established company might have valuable intangible assets that would substantially contribute to its ability to make money: established business relationships, a highly skilled workforce, an efficient supply chain, secret formulas and patents, widely recognized brands and trademarks, etc.  In short, there can be a lot more to the value of a company than just its “hard assets” such as cash, inventory, property, etc.

However (and this is a BIG however), if a company is being valued at $10,000,000 and yet it would only be worth $4,000,000 upon liquidation, there still has to be a financial explanation for where that remaining $6,000,000 of value is coming from.  In other words, what is it about the company that makes it worth more than sum of its tangible assets?  If there is a compelling story there – a story that explains how the company’s business prospects, activities and operations are worth an extra $6,000,000 – then the stock valuation of the company can be justified.  If not then the company’s stock price is being pumped up by hype and hot air.

Summary

While it’s true that you cannot you cannot fully measure the value of a company based on its hard assets (cash, inventory, buildings, etc.), it’s also true that a company’s value is ultimately measured in dollars.  That means when it comes to a company’s stock valuation, cash is king!

 


[1] This would be the case if, for example, a company’s stock was trading at $50 a share and there were 200,000 total shares outstanding ($50 x 200,000 shares = $10,000,000).

Financial Resources For Improving Your Financial Situation

Managing your funds well throughout these times is of utmost relevance. Individuals are having a hard time making ends consult the raising cost of products as well as the rising interest prices on home mortgage as well as vehicle findings- the honest truth that a number of companies, and economic titans at that, are either folding or minimizing workers.  You can improve your financial situation greatly by using the right financial resources.

Much uncertainty waits for the air in today’s financial scene triggering the need for useful finance assistance not simply for huge financiers yet right to typical individual trying to endure the day-to-day grind. It would certainly seem like employing an individual economist to help you make likelihoods and ends of your present situation would certainly be pricey as well as can perhaps lower your readily available financial sources likewise even more down.

Financial Resources Suitable for Road to Your Economic Success:

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First is investments.  There is no warranty that you’ll generate cash from investments you make. Yet if you obtain the basic realities about saving as well as investing and also adhere to using with an intelligent plan, you should certainly manage to obtain economic security as well as safety and security for several years and also indulge in the benefits of handling your money.

No individual is birthed recognizing exactly how you could conserve or to invest. Every effective investor starts with the essentials. A few individuals might stumble into economic protection – a wealthy loved one might die, or a business may eliminate. For great deals of people nonetheless, the only technique to obtain financial protection is to conserve as well as invest over a lengthy amount of time.

Discover if there is any money that could be spent. If so, then consult with financial resources such as an investment broker to check out if precisely what you need to invest is worth the trip. If it is large as well as it is put appropriately, then perhaps there will certainly suffice to use towards your retirement.

When you obtain your entire ducks right, make sure your tax obligation lawyer or accountant realizes your complete monetary development. They can assist you much better plan for the future by recognizing where you go to the present moment. They can additionally supply you some terrific recommendations relating to the very best ways to proceed in your investments.

Time and again, individuals of also moderate means which begin the quest reach financial security and also all that it assures: buying a home, academic chances for their children, as well as a comfy retired life. If they could do it, so might you.

Savings & Budgeting

Second of all is making to get just your basic needs as well as save as much of your incomes as you can. Include your cost savings in your regular monthly budget strategy. It is likewise a good idea to examine your investing methods and also you will be able to check out where you need to make decreasing or you could possibly source for an additional income. If you use bank card, it is very important to manage your investing. They are hassle-free yet at the same time they can land you into a stack of monetary difficulty.

It is vital that you entirely realized just exactly how it works to make sure that you could utilize it appropriately. If you acknowledge that you could not have the discipline as well as you put on not would such as to carry cash around, you can go with a debit card. It functions merely like cash and has a limit relating to simply just how much you can invest.

How to Invest in Stocks

Learning How to Invest in Stocks 101

Regardless of how many Wall Street films you have seen in the past, stocks and shares is not an easy topic. Those who are searching online for resources on how to invest in stocks for beginners or with little money thinking that they will “certainly” become the next overnight millionaires should, first and foremost, receive a word of warning: Yes, some people can really get rich overnight playing with shares at the stock exchange market; however, but that happens once a blue moon. Every person willing to dip a toe in the world of stocks investment should, at the very least, get prepared first and —as if you were playing chess— think his moves twice beforehand to prevent regrets after.

That being said… How to invest in stocks?

First Things First: Get Informed

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Before spending one penny in a stock market, the first thing you should do is to get informed. Let’s ask a few questions so you can ask yourself if you know the answers:

  • Do you know what a stock is, and how they are currently stored?
  • How many kinds of shares are there, and which of them you can buy?
  • Do you know what a stock broker is? Have you found any for yourself already?
  • Lastly, have you spoken with your accountant about the financial and tax consequences (if any) of becoming a stock investor?

If you do not know the answer to any of these questions, then please let me suggest you the following readings:

  • Investing articles on stocks and the stock market could be a reasonable starting point.
  • The Beginners’ Guide to Investing, by the American Securities and Exchange Commission can provide you a more specific introduction to the topic.
  • Investor’s glossary page can help you clear your doubts.
  • Lists of stock brokers such as this one by Nasdaq can help you find a reputable stock trader for your assets.

Learning How to Invest in Stocks

Next, choose how you will invest in stocks

Once you have covered the basics and feel better informed to start investing, you need to find out a way to do it suitable for yourself and for your money.  There are many options and approaches for this, yet, for beginners, I like to keep things simple. Remember the goal is to make money, and that you have basically two ways to get it with stocks:

  • You either buy stocks to resell them after a short time.
  • You buy stocks to expect a profit sharing payment or resell them after a longer term.

In both cases, your goal will be to make more money from what you invested, a profit.

What are the best stocks to invest in?

The best stocks are on companies or markets you understand, so this answer will depend strongly in your background. Let’s try to make it clear with an example, anyway:

Let’s say someone offers us stocks from an ice-cream company… would you buy them? An uninformed person may go buy them just because “heard” those shares are “about to go up”, and that “it is the exact moment to buy them.” Someone who understands the ice-cream market, however, would pause for a moment and think: Ice-creams are mainly sold in summer. During the winter, their demand falls down. The wisest move would be to buy the stocks in winter, when demand is low and prices go down; and to sell them in spring or at the beginning of summer, when demand goes up and so do prices.

After learning how to invest in stocks, remember knowing the market you are about to invest in will help you get a better understanding of when to buy or sell your stocks.

Certainly, your stock broker should advise you about your investments too.

Fidelity Active Trader Pro

Fidelity Active Trader Pro

Understanding how to use the Fidelity Active Trader Pro will make your life so much easier.  On top of that, you’ll be able to quickly find what you’re looking for.  In this article I’ll review Fidelity’s Active Trader Pro Platform in addition to showing you some of the features.

Start Forex Trading Without An Investment

Start Forex Trading Without Investment & Day Trading Forex

Forex is an acronym of Foreign Exchange, and Forex Trading is the global business of trading of currencies from various countries against each other. The foreign exchange market also known as FX, currency market or Forex. All of the larger international banks are major participants in Forex trading.  So, is it really possible to start Forex trading without investment?  What about Day Trading Forex?  The answer to both of these is yes you can!

Typically Forex trading is performed by the brokers, in this business you have right to choose the currency pair that you expect to change in the value and trade accordingly. As a Forex trader, you have to place an order through broker then the broker passes the order to their partner in the Interbank Market and fills your place. In case, you close the trade the broker closes your position with the loss or profit during the trade.

Start Forex Trading Business? Why Should I?

No matter what is your actual business you can do it from home as part-time, if you know how to do business and survive in the market, start by day trading Forex. It requires practice and knowledge of different markets you want to work with.

Day Trading Forex is Easy With a 24-Hour Market

As a Forex trader, you can choose your own hours to work from the morning in Australia till the night in the United States. The Forex market never sleeps, so you can join Forex trading as a part-time business, but you must have some amount to invest. You can find your peak hours to do Forex trade according to your regional time.  Find out how to combat inflation!

Low transaction costs

The physical Forex markets require large amounts to invest to survive in the market, on the other hand, online Forex trading doesn’t require anything like this. You can make transaction cost under 0.1% under standard market circumstances, and the larger markets can bid as low as 0.07%, so it depends on your investment in this market.

No commissions

As a Forex trader, you don’t need to bear expenses like brokerage fees, exchange fees or government

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fees. Most of the retail brokers compensate for their services, so they don’t require you the commission.

Just like other businesses, day trading Forex also has scammers who are just like a black sheep in this field.

Before you start Forex trading, you need to avoid them, following tips helps you to avoid from Forex scam or fraud.

Google the product and research for it: If you see a new product that offers high-profit, search about it in Google, for example: write “product name scam” if the results yield with too many results don’t go with it.

If it looks too good: Websites that offers high-profit, keep in mind there’s no easy money in this market.

Scamming websites usually have one page with big/blinking $ sign and serious explanations.

Demo account: As a beginner you need to care for the demo accounts. You must ask from the people who have experienced the field to start a demo account.

Check the people on LinkedIn: LinkedIn is the world’s largest professional network with a wide audience. People who looks new to the Forex and from whom you might have scam risk then they can be searched out on LinkedIn. By checking their linked profiles you will know that whether they are trusted or not.

The Potential Value In Fitbit Inc

My Current Position In Fitbit Inc.

I’ve been watching Fitbit Inc (symbol: FIT) over the last couple of years.  During that time I’ve bought and sold shares of Fitbit here and there.  During August of 2017 I began getting more serious and started purchasing shares fairly regularly.  As of January 30th, 2018 I currently own 7,630 shares of Fitbit.  With 1,930 in retirement accounts and the remaining 5,700 in my personal brokerage account.  I have just $40k invested in Fitbit. with their current share price of $5.22.  I’m currently averaging a cost basis per a share of $6.11 (I’m down just around $6,800).  I plan to add an additional $5k over the next month to put my total original investment just above $50k.

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Current Financial Situation of Fitbit, Inc.

There were a few things to call about about the latest earnings report for the fiscal Q3 ending on September 30th, 2017.

Highlights From Fitbit’s Q3 FY17 Financial Report

  • $659 million in cash, with current assets totaling $1.23 billion
  • $564 million in current liabilities
  • $392 million in revenue, with $174 million and -$27 million in gross profit and operating income respectively
  • -$113 million in net income
  • Operating cash flow was $5.5 million, net change in cash for Q3 FY17 was -$38 million.

There’s a few important things to call out from Fitbit’s Q3 FY17 Financial Report

  1. Has a very strong cash position, with operating cash flow remaining positive.
  2. R&D spend remained at $84 million contributing to the lower net income

The Long Term Strategy Of Fitbit

If Fitbit is able to enter into the healthcare side of things.  I believe there is a lot of potential for this company.  During FY18 I’ll be looking for YoY sales increases and their plan for expanding their services.  I still believe that Fitbit is undervalue at it’s current price.  With the market cap just under $1.3 billion, this company has a lot of room to go, if they can prove to the market their value.

What Do Investment Bankers Do

What Do Investment Bankers Do?

So, what do investment bankers do exactly?  The simplest explanation is that investment bankers are the world’s deal makers, usually acting as a type of broker. Basically, they match projects with money. Investment Bankers find projects, analyze them, cherry-pick the best, then structure them as investments and, lastly, find the investors (or in the case of an in-house investment banker present the project to the firm’s investment committee.) Most investment bankers will review over one hundred projects per year and eventually reject 99% of them. It’s a really difficult job. A great investment banker is literally worth more than his or her weight in gold. There are few great investment bankers… and even fewer after the 2008 financial crisis.

My Background In Investment Banking

To better understand what do investment bankers do I’m going to provide my background.  I have been an investment banker for the past thirty-eight years. I started at the ripe old age of eighteen with the purchase and syndication of two apartment buildings in Northern California, then went on to start one of the first video store chains in the United States. On my first group of syndications, I tripled my investors’ money within three years. Honestly, it was luck and timing.

Somewhere along the line, I developed a reputation and I managed to pick up hundreds of clients that I helped raise money for and manage their investor relations. Some of those clients you

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might recognize: IBM, AT&T, Chevron, ADP, FMC, Motorola, Lockheed Martin, Intel, State Farm, Allstate, and 19 other Fortune 500 companies. I have personally syndicated over 100 investments in my career and helped raise billions of dollars in equity for my clients.

 

I also worked in the entertainment industry writing, directing and executive producing motion pictures. There are 7 motion pictures based on my screenplays, two of which I also directed. I personally invested in or helped finance over 100 independent movies and I founded several successful media services companies in Southern California. Those are my credentials.

I have had my ups and downs–2008 was particularly tough–but I have survived and even prospered. Over the years, I have learned a few secrets about investing that I would like to share with you. If you are not already wealthy, I hope this information makes you become wealthy… like REALLY WEALTHY!

And if you are lucky enough to already be in the top 1%, then I hope this information helps you stay there and sleep better at night knowing your nest egg is safe.

They Usually Specialize

Investment bankers usually specialize in industry sectors such as energy, real estate, technology, consumer goods, minerals, communications, transportation, media, etc. They also specialize in the types of deals that they put together. Some work in mergers and acquisitions (M&A), while other develop IPOs. Many work in equity placement or financing. Some investment bankers specialize in financing startups and growing companies, while others only handle mature companies. Still others stay away from corporate finance and instead specialize in project financing (my personal favorite) like commercial real estate development or acquisition financing.

Their Education

To answer What do investment bankers do?  We need to understand more about their education. Most investment bankers start off graduating from a prestigious university, then working for a number of years at one of the big investment banks; Goldman Sachs, , Morgan Stanley, JP Morgan, Deutsche Bank, Credit Suisse, etc. Once they gain their confidence and develop their contacts many leave to launch their own firms and develop their own projects. Some end up running investment funds, while others remain independent putting deals together for sponsors in need of capital.

Those Rolodexes

Investment bankers keep massive Rolodexes or databases of investor contacts. My personal database has over 8,000 investor contacts all of which have over $100 million in assets. Investment bankers are similar to sports or entertainment agent in that their power comes from who they know and who will take their call on short notice.

Keen Eyes

An investment banker must always understand current capital market conditions, so they know which projects will get funded and which are a waste of time. They must have a keen eye and are always on the lookout for quality projects and sponsors. An investment banker must know how to structure an investment deal so that it is marketable to investors, while still leaving enough meat on the bone to incentivize the performance of the investment sponsor.

Now you should be able to answer what do investment bankers do!  Most successful investments over $10 million have an investment banker behind them. The new arena for investment bankers is crowdfunding. It is the ultimate free market system for raising capital and very well could change the way American business are financed. But more about that in posts to follow….