What makes a company "worth" something?


J

jm

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R

Ron Peterson

jm said:
Take for example:
OWENS CORNING (OTC BB:OWENQ.OB)
My question is why is this stock on .58 cents? $71.5 million dollars is a
ton of money, so how much are the companies at $15+ dollars worth? And why
is this stock so low? I picked this one at random.
Owens Corning is bankrupt. Although some companies emerge from
bankruptcy with some return to stockholders, don't count on it.
 
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J

John A. Weeks III

jm said:
My question is why is this stock on .58 cents? $71.5 million dollars is a
ton of money, so how much are the companies at $15+ dollars worth? And why
is this stock so low? I picked this one at random.
The value of a company has several components:

1) current market value of assets that are on the books, such as
buildings, equipment, land, ore, timber, jet aircraft, etc.

2) cash on hand, securities, and discounted account receivables.

3) sum total of the present value of any future earnings.

4) goodwill (such as value of a trade name or brand recognition).

5) subtract off any debts, loans, bonds, and other liabilities.

For the most part, the items in #1 are going to be of little
value. Buildings are hard to sell once built, specialized
equipment has little resale value, and office equipment is
normally leased anyway, not owned. Few companies have much of
anything in #2, with Apple and Microsoft being notable exceptions.
#4 is usually a foo-foo number, and is rarely a significant
part of a company's value.

That leaves #3 and #5 as your biggest factors. That is why
earnings reports are so important, and why stock prices move
so dramatically during earnings season. Note that you have
to discount future earnings using present value. That is
because a dollar coming in a year from now is worth less than
a dollar today, due to the time value of money.

-john-
 

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