Financial manipulation is the art of getting everybody confused between stocks and flows. As long as the flow continues, the employees of SoftBank get paid, and get bonuses, and everybody keeps dancing around the floor. (Granted the latest proposal there, which is to make them all take out loans of up to 15x their salary to provide the capital for Softbank 2.0 may interfere with that.)
and then, one day, the music stops, and there aren't any chairs to sit on, at all...
What would the signs be, sights seen or sounds heard just before the music stops?
The purpose of external consultant is to guess what client is expecting from you and deliver exactly that. Usually the management requires a stack of papers to cover their asses in case of risky deal, sometimes to get an argument in some internal struggle. They never expect objective truth or independent thinking.
There is no conspiracy here just the market forces at work. Imagine what happens to consultancies who do not deliver..
There isn’t a theoretical foundation for valuing lossmaking companies.
The best we can do is project forward to a cash-flow producing state, where there is good theory, and then discount that value to the present. The projection is essentially guesswork, making homework-checking by valuation consultants somewhat useless.
The only real check is other investors participating. That happened with some of Softbank’s investments, but not with others. (Adding fuel to the fire is Softbank’s habit of shutting down the secondary markets around companies it invests in.)
Valuation depends on estimates of the firm's future revenue growth, predictions about the business climate, etc. That's what investment analysts do, using the audited financial statements as a basis for developing scenarios for the future.
You managed to figure it out before even hitting the end of the sentence in which you posed the question.
Money works kind of like particle physics. Once you start to operate on a fundamentally different scale, basic laws of nature start to change.
You mean the way Big Five accounting firm Arthur Andersen signed off on Enron's shenanigans?
Combine that with the fact that those auditing/consulting firms are being paid by SoftBank and you can see a strong incentive for them to side with SoftBank's valuation strategy.
I'm sure the risk management people in the Big-4 are looking at this but I'd also guess there's quite a lot of pressure to let it ride, as I'm sure work from SoftBank + it's group companies is worth a lot of money.
It's been the case in many previous collapses, that the auditors signed off on the companies, sometimes quite close to the date they collapsed, and that wasn't even where there is a lot of ambiguity as there is here.
All this isn't to say that the valuations are necessarily otf, but that I can see the incentives that might lead to companies accepting them.
They are also drinking the same Kool-Aid as most other people in the industry, that all this is above board and fine. There's a lot of group-thinking, and not as much objective analysis as is needed.
The blindness extends to management and the board, who all want the company to be successful. Good financial numbers are questioned a lot less than bad ones.
Not if they accept the same culture of growth that enables this in the first place—it’s certainly still speculation, not a science. I would love to see the justification behind the $47B valuation.
Additionally, corporate management theoretically exercise due diligence, along with the valuation committees and the board looking into the reasonableness of the models and associated inputs and outputs. It would be awkward to say that these valuations are wrong with so many people having their inputs.