FundRobot » Investments » Can you determine total value of a company by subtracting liabilities from assets?

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Old   #1 (permalink)
 
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Default determine total value of a company by subtracting liabilities from assets

Like, say there is a company who says its assets are worth $30M in total. They announce that they have $20M in total liabilities. This means that there is $10M in equity, correct? And that equity is the total value of the company, correct? Thanks, appreciate all answers.

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Default determine total value of a company by subtracting liabilities from assets

There are many ways to calculate the value of a company.

You refer to the book value. It is an accounting value.

If the company has public shares, the number of shares times the price per share is the market capitalization. That is what the public believes the value of the company is.

Then there is the Tangible Book Value. If company A buys company B for higher than its accounting value, the difference is an intangible asset called Goodwill. Those assets get depreciated or lessened over time. It is the value of a company or product brand name. Intangible assets cannot be touched physically.

Then there is a valuation based on revenue or earnings. A company may have very little assets, but a lot of sales (revenue). There are valuations as multiples of earnings or sales as projected earnings.

Another valuation involves hidden or under-stated assets, and there could be hidden or understated liabilities. Suppose a company owns a Manhattan skyscraper for years. It has been depreciated by accounting to a lower value, but if the building were sold at market value it would be many times its book value. A company could be facing lawsuits. It could have patents. As another example, if the assets are not easily sellable, such as a factory, or inventory. Suppose a company has on the books 10 million dollars in purple blankets. Looking at this way might refer to liquidation value.

It is not as easy as assets minus liabilities.
What is the value of Apple?
End of March 2014 Balance sheet says $120,179,000,000
Net tangible assets says $114,196,000,000
Market capitalization says $90.91/share to yield $548,160,000,000

There is a calculated Enterprise value, market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents. $523,720,000,000

Rough evaluating using revenue would say 3.5 times trailing 12 months revenue.
$616,122,500,000

Or, a company earning $10 billion every 3 months (about $40 billion a year) would have what value?
What about future growth potential? If we say a good investment earns 5% per year, 20 times annual earnings $800,000,000,000

So, yes, stockholders equity is a book value. It may be more or less than the company's value depending on how a person evaluates value. That is why stocks keep changing in price. Suppose a company develops a cure for lung cancer. It could have minimal assets on the books. It could be losing money now. It could have very little revenue. What is the company's value?
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Old   #3 (permalink)
 
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Default determine total value of a company by subtracting liabilities from assets

Correct on the equity. Incorrect on the value. Usually when the value of a company is mentioned they are referring to the value of all of the outstanding stock.
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