The reality, and this is how a private party, PE firm, traditional bank or public market will determine this:

The company is generating profits currently at this rate Y, and is growing at this rate X, that means that over 3 years it should return those profits + the growth of that profit back to the buyer (in cash as dividends and/or in enterprise value), and that is factored into a rate of return - if that rate is greater than the rates elsewhere, compared to the risk, then it makes sense to buy it at that value.

Consider comparing the business to a traditional investment. How much money would you need to have invested in medium-risk markets to return $236k/yr? To beat the market average you'd need about $2M invested to generate those returns. Now factor in that the company itself is growing, and the company will likely generate >$236k next year, and more the following year... so how much do you need to invest today in traditional markets to generate 236k+360k+500k (1.09M) over the next 3 years? It's around $3M now. Consider that in 3 years time you could have taken $1.09M out in profit, and you now own a business that is worth $4-4.5M (based on future earnings potential).

You don't need to be an evil wallstreet hedge fund manager to think like this - the owner of a business should consider the enterprise value of their business at all times in making decisions about their business.

This is how the entire economy works - if you're saying that is against your moral Muslim faith then you should not be buying any goods right now from public companies, hold any mortgages, or keep any money in a bank.

What's the difference when the 'product' is the company itself? When a buyer comes along offering 7-15x the company's earnings for it, why is that not 'the actual value it provides' them?

Company acquisition is possible without the existence of a stock market. What I’m objecting to is the latter.

IPO/stock market was not mentioned anywhere in the post. It’s much more typical to be acquired than to go public.

Sorry, you’re right. Confused the two for a second.

You're the only one that mentioned the stock market at all, so I would question if you know the difference you're alluding to here.

As others pointed out, nobody else mentioned sale by public offering.

But let's go with it anyway, why is that different? It's just a way to have multiple owners, more easily very many of them than you could manage in a private sale. So why is the stock price not the actual value people see that slice of the company as providing them?

> immoral and I don’t want to ever participate in stock market

I feel that is a common opinion amongst people that haven't started a business. It is too easy to judge others.

If you are selling a product/service you can't avoid becoming part of the capitalist system and you are supporting "immoral" companies through your suppliers (e.g. paying Google for advertising, paying Amazon for fulfilment).

It is difficult to start a business and keep true to your ideals. And people that do walk the line between creating a business and keeping their morals is uncommon enough that they tend to be remembered for it e.g. Bob's Red Mill: https://news.ycombinator.com/item?id=39366542

It is much easier to be tritely moralistic if you don't start a business. I often really admire people with idealistic values - and morality is critical in business. I don't admire people if they go to negative extremes: https://en.m.wikipedia.org/wiki/Splitting_(psychology)

Almost by definition starting a business means taking on risks. Mixing risks and money is "gambling" and it is an inherent property of businesses. Deciding what is good gambling and what is bad gambling is a very old problem. Buying insurance is reducing risk (less gambling) but insurance is gambling by definition. Unfortunately you have chosen the moralistic word "gambling" to talk about the normal issue of managing risk.

Perhaps you just don't like the rich? One can have shares and own a business without being/becoming rich - you don't need to directly involve wealthy people.

One can bootstrap a company without taking rich-peoples investments - see article. Unfortunately we get hoodwinked by the success stories from the VC investment sector. We hear less about the losers in the VC game or other ways to play the game of business.

Edit: a business is just a complicated machine. If you believe selling a product is moral, then you must believe that selling a business is also moral.

As a Muslim, I disagree. A business is more than the sum of its revenues. Marketing, research and development, relationship with clients, etc. are all part of the business valuation. If a buyer looks at some business and decides its worth 10x, then that's not haram as long as you're not deceiving them.

Uh? Islam says nothing about the stock market. Participating in businesses and having shares is completely halal, and encouraged actually. That's the good way of generating long term revenue, as opposed to lending or profiting from interests. The very first Muslims and the prophet himself PBUH were merchants and traders, and business owners.

I’ve met people that believe that any extension of credit that has a premium attached to it is against the rules. And that the very real fact that any transaction on a modern exchange involves the extension of credit with a premium, leads to a situation where the exchanges themselves are forbidden.

I don’t have any opinion on if this interpretation squares with their religion but it is certainly true that stock exchanges are run on extending credit and paying a premium for it.

Mhmm I can see that argument being quite valid for trading stocks in general. As in, a actively trading since it inherently involves margin and leverage at one point or another, but just owning a share of a publicly owned corporation is a bit different imo.

As you said it depends on interpretation, and I think it depends but it's not as clear cut as the comment I was replying to could make it seem for others.