Re:Why Tesla Is Worth More Than GM
by adventured on Tuesday July 04, 2017 @12:05PM
(#14696617)
> Certainly if there were two identical companies, and one had $10B more in cash, the one with $10B more in cash would be worth more than the other company?
Not necessarily. If shareholders believe the company with the less cash has a better future, that is if future earnings/growth expectations are higher for the company with less cash, then said company may be granted a dramatically higher market cap.
Two companies with identical balance sheets, identical growth rates, and identical net income numbers, can have radically different market caps. It depends on how shareholders regard the companies, what they think their futures look like (and sometimes it even depends just on more ridiculous things like hype / herd insanity, as eg with the dotcom bubble, in which Cisco was given an extraordinary multiple off its earnings).
Walmart's balance sheet & profit picture were far superior to Amazon's at the time when Amazon became larger than Walmart in terms of market cap. Shareholders came to believe that Amazon had a far brighter future, in regards to growth etc etc. Amazon has been granted an unusual valuation for a very long time, on the basis of expectations of future growth.
Not necessarily. If shareholders believe the company with the less cash has a better future, that is if future earnings/growth expectations are higher for the company with less cash, then said company may be granted a dramatically higher market cap.
Two companies with identical balance sheets, identical growth rates, and identical net income numbers, can have radically different market caps. It depends on how shareholders regard the companies, what they think their futures look like (and sometimes it even depends just on more ridiculous things like hype / herd insanity, as eg with the dotcom bubble, in which Cisco was given an extraordinary multiple off its earnings).
Walmart's balance sheet & profit picture were far superior to Amazon's at the time when Amazon became larger than Walmart in terms of market cap. Shareholders came to believe that Amazon had a far brighter future, in regards to growth etc etc. Amazon has been granted an unusual valuation for a very long time, on the basis of expectations of future growth.