What does this tell me, if anything?

[viciam]

Hi all,

I've been trying to teach myself how to value a business and I thought the best way to do that is to try different things. I'm not sure if the following simple thing actually tells me anything or nothing at all. If you have a moment, please let me have your input.

I own shares of a company.

Total shares outstanding: 250,387,303
No of shares I own: 1,583 (I invested £5,305 GBP)

2014 profit was £28,397,000 GBP

My ownership is 0.00063%.

Does this mean that I rightfully own 0.00063% of the 2014 profit which was reported at £28,397,000? Which comes to £178.

Does this actually tell me anything or am I completely going the wrong way about valuing my stake in a business?

Also, there isn't actually any way for me to have that £178 right? So is there any benefit in knowing this?

Really would love some replies, thanks in advance guys

 

[ROE]

Hi all,

I've been trying to teach myself how to value a business and I thought the best way to do that is to try different things. I'm not sure if the following simple thing actually tells me anything or nothing at all. If you have a moment, please let me have your input.

I own shares of a company.

Total shares outstanding: 250,387,303
No of shares I own: 1,583 (I invested £5,305 GBP)

2014 profit was £28,397,000 GBP

My ownership is 0.00063%.

Does this mean that I rightfully own 0.00063% of the 2014 profit which was reported at £28,397,000? Which comes to £178.

Does this actually tell me anything or am I completely going the wrong way about valuing my stake in a business?

Also, there isn't actually any way for me to have that £178 right? So is there any benefit in knowing this?

Really would love some replies, thanks in advance guys

yes you own that much in the business but you are at the lower end of the scale
senior creditors and employee entitlement and other creditors comes before you
so if the business is in trouble you get what is left over after they pay out the other two
and that usually nothing

having said good business will survive a long period of time and you dont have to worry about it going belly up ....once you in a business you get a return on your investment in 2 ways when you own common stock

1. via dividend (these usually at discretion of the board but most company has a policy how they pay out dividend each year and they let you and the market know if there is a change in policy)

2. capital appreciation on the stock price ...you sell some to release the capital.

but you cant ask for that 178 pounds, that money get manage by the board and they reinvest, blow it on some stupid acquisition or what ever that all up to the board of directors... you just have to put your faith in the management doing the right thing and increase dividend pay out and grow business each year so you get richer by holding on to them.

That is a lot faith to put on management so make sure you pick a company that has decent management that has large stake in the business via common stock holding.

that way if they blowed your money they blowed their own as well so they tend to be a little more careful with the money they have in the bank account.

no one is perfect and they do make mistakes but if they have large stake in the game they generally work very hard to rebuild the business rather than jump ship and set sail to Bahamas.

Good luck.

a few example you can look up is FLT and CCP management has very large stake in the game, they made a blunder but they took actions to regain shareholder trust and turn it into an even stronger company than when they made that blunder.

 

[viciam]

yes you own that much in the business but you are at the lower end of the scale
senior creditors and employee entitlement and other creditors comes before you
so if the business is in trouble you get what is left over after they pay out the other two
and that usually nothing

having said good business will survive a long period of time and you dont have to worry about it going belly up ....once you in a business you get a return on your investment in 2 ways when you own common stock

1. via dividend (these usually at discretion of the board but most company has a policy how they pay out dividend each year and they let you and the market know if there is a change in policy)

2. capital appreciation on the stock price ...you sell some to release the capital.

but you cant ask for that 178 pounds, that money get manage by the board and they reinvest, blow it on some stupid acquisition or what ever that all up to the board of directors... you just have to put your faith in the management doing the right thing and increase dividend pay out and grow business each year so you get richer by holding on to them.

That is a lot faith to put on management so make sure you pick a company that has decent management that has large stake in the business via common stock holding.

that way if they blowed your money they blowed their own as well so they tend to be a little more careful with the money they have in the bank account.

no one is perfect and they do make mistakes but if they have large stake in the game they generally work very hard to rebuild the business rather than jump ship and set sail to Bahamas.

Good luck.

a few example you can look up is FLT and CCP management has very large stake in the game, they made a blunder but they took actions to regain shareholder trust and turn it into an even stronger company than when they made that blunder.

Thanks for that.

I heard that when valuing a company, one should do it from the point of view of the WHOLE company and not just your stake.

Does it mean that me knowing how much my stake is not important?

 

[luutzu]

Thanks for that.

I heard that when valuing a company, one should do it from the point of view of the WHOLE company and not just your stake.

Does it mean that me knowing how much my stake is not important?

per share or whole company is a matter of division.

Knowing how much of the company you own would be of little use if, say, you know it so you can demand management pay you your share of 0.00006% or a company's car worth of assets. The share you own is traded on an exchange, or a secondary market, and it's a market between shareholders/investors trading through a broker.. sometimes the company buy or sell more shares on the market, but them doing so as a shareholder or market participant, not as the company per se.

On other words, your holdings mean fractional ownership in the company; you can sell it back to the company but only when they make an offer; you and other shareholders generally will just trade it with one another and the company have nothing to do with it.

---

as to whether it's important to know the entire value of the company or just the share... I find it helpful to put perspective on the share price if you know what it mean when it's multiplied to the entire company.

Say a share is $5... not too bad, sounds cheap. But then if there's 1 billion shares and that mean the company with a few operations in Australia is worth $5 billion... It put things in perspective.

Another good use of knowing the per share and the whole is you could see if the reported figure are as impressive as it appear. If, say, total sales growth is decent and the company is buying back its shares so the per share is even better... that's a good thing... but if total sales is stagnant or declines and management keeps buying back shares to keep the price up or to play around with per share figures to boost their bonuses, buying with borrowed money etc...

So it gives you different perspective and you can use that to make decisions about the performance as well as integrity of management etc.

 

[viciam]

per share or whole company is a matter of division.

Knowing how much of the company you own would be of little use if, say, you know it so you can demand management pay you your share of 0.00006% or a company's car worth of assets. The share you own is traded on an exchange, or a secondary market, and it's a market between shareholders/investors trading through a broker.. sometimes the company buy or sell more shares on the market, but them doing so as a shareholder or market participant, not as the company per se.

On other words, your holdings mean fractional ownership in the company; you can sell it back to the company but only when they make an offer; you and other shareholders generally will just trade it with one another and the company have nothing to do with it.

---

as to whether it's important to know the entire value of the company or just the share... I find it helpful to put perspective on the share price if you know what it mean when it's multiplied to the entire company.

Say a share is $5... not too bad, sounds cheap. But then if there's 1 billion shares and that mean the company with a few operations in Australia is worth $5 billion... It put things in perspective.

Another good use of knowing the per share and the whole is you could see if the reported figure are as impressive as it appear. If, say, total sales growth is decent and the company is buying back its shares so the per share is even better... that's a good thing... but if total sales is stagnant or declines and management keeps buying back shares to keep the price up or to play around with per share figures to boost their bonuses, buying with borrowed money etc...

So it gives you different perspective and you can use that to make decisions about the performance as well as integrity of management etc.

It's an interesting point about buying back shares when sales are stagnant or declining to boost per share figures.

 

[Value Collector]

It's an interesting point about buying back shares when sales are stagnant or declining to boost per share figures.

The only time buy backs make sense are when the company is generating more cash than it can deploy at high rates of return inside its existing businesses, and when these shares can be bought back at a price that makes sense.

If a company is overpaying for its own shares, then it is favouring exiting shareholders at the expense of the continuing shareholders.

Shares should never be purchased with the intent of stopping a share price fall or for the purpose of boosting the share price, it should always be based on a rational process based on value, there is no point in a company giving up 1X of cash to buy 0.5X of stock, they should only repurchase where they can hand over 1X of cash for 1.1X of business value. This will build value for continuing holders while also providing increased price support for the exiting shareholders.

 

[Value Collector]

Thanks for that.

I heard that when valuing a company, one should do it from the point of view of the WHOLE company and not just your stake.

Does it mean that me knowing how much my stake is not important?

Yes you should value the entire company, and then divide that value by the number of existing shares to bring it back to a per share value, you value will likely be a range, rather than a fixed number, due to you being forced to make a set of assumptions about the companies future.

You also need to take into consideration the capital structure as a whole, eg bonds, other debt, options, warrants, preferred shares, etc because these other securities have a claim on the business to.