Understanding company statements and capital structure
Market Value of Assets Market value of assets.
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- In the last video we saw that
- if Ben's shoe company's stock prices
- are trading at $21.50 per share
- and if Ben's shoe company has 10,000 shares,
- and we saw that over here on the left....
- If it had 10,000 shares,
- and actually both of the shoe companies had 10,000 shares,
- then the market is essentially
- valuing the equity of Ben's shoe company
- at $215,000,
- even though the book value of the equity
- was $135,000.
- What I want to do in this video is think about
- what does that mean,
- or how should we perceive
- the market's value of the assets of Ben's shoe company,
- and then we can also think about Jason's shoe company.
- So, remember,
- assets are equal to liabilites plus shareholder's equity,
- so if all of a sudden
- the market value of the equity,
- the market capitalization,
- for Ben's shoe company is $215,000...
- (That is the equity part right over here)
- This is the equity...
- And the only liability that Ben's shoe company had
- was this $5,000 in accounts payable...
- So let me show you that right over here...
- He had this $5,000 dollars in accounts payable,
- also depicted over there.
- So the only liability is this $5,000.
- So the liabilities plus the equity
- in the case of Ben's company
- is $215,000 plus $5,000,
- so this piece right over here is $220,000.
- Now, you might remember from previous videos
- that the book value of the assets in Ben's company
- are only $140,000!
- $20,000 of cash, $100,000 of inventory,
- $20,000 of... this is not equity,
- this is equipment I should call it.
- This is equipment, $20,000 of equipment.
- So the question is what makes up the gap here?
- when we think about the market value of the equity.
- Because remember,
- this piece right here only adds up to $140,000!
- But our total assets,
- or the market's perception of the total assets of the company,
- are essentially what it's willing to pay
- for the equity plus the liabilities,
- so the market is saying that Ben's assets,
- the assets in that company are worth $220,000.
- So what makes the difference?
- And even better, let's assume that
- Ben has actually done a good job
- of saying the market value of his inventory,
- the market value of his equipment.
- Well, what the market is saying in this situation,
- and this is actually what tends to happen
- where the market value
- or in general the market value of a company
- tends to be higher than the book value,
- is that the company is saying that
- this company has some type of intangibles,
- things that you really can't put a finger on,
- or touch or feel or hold.
- But it makes this company's assets,
- or this company has more than just the sum of its parts.
- There's more to this company
- than just the equipments, the inventory and the cash.
- It might be Ben's management expertise.
- It might be a certain way they have of doing business.
- It might be a certain location they have.
- It might be their assortment.
- Who knows what it has!
- But the market is saying that the combination of this
- plus all of the expertise
- and how the business is organised
- means that it actually has more assets
- than are on the books.
- And the same thing is true of Jason's company.
- When they assign a $120,000 market cap there...
- This is $120,000 in equity, market value of equity,
- he has another $105,000 in liabilites.
- So the market is valuing their equity plus liabilities
- at 100 and... or $225,000.
- Is that right?
- 120 + 100 + 5
- So 225,000
- So once again they're valuing all of the assets
- at 225,000.
- Because assets are equal to liabilites,
- (these are the liabilities right here)
- plus equity.
- So once again they're saying there's something above and beyond
- the $140,000 that makes this company special
- And an interesting thing to think about,
- and we'll address it in the next video is:
- Which one is a better deal?
- Considering that these companies are pretty, pretty similar.
Be specific, and indicate a time in the video:
At 5:31, how is the moon large enough to block the sun? Isn't the sun way larger?
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