Today05/21/2012Just a point of order about valuation. In most people's mind, the valuation of a company is a simple linear extrapolation of the current stock value to the total number of shares. This is fine if all someone is doing is some comparative analysis, but is not consistent with economic theory.
If we want to get a proper valuation of companies, we have to look at marginal valuation consistent with the normal laws of supply and demand. If the supply of facebook stock were to suddenly increase, the value of that stock would decrease.
This in general is a problem with valuation of stock in general. The total value of a company should not be based on simple linear extrapolation, but should follow a standard utility curve just like everything else.
View the Original article
No comments:
Post a Comment