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Consulting firms generate revenues. Their assets are mostly human capital, but their value is generally a multiple of current earnings, not "a pure function of

Consulting firms generate revenues. Their assets are mostly human capital, but their value is generally a multiple of current earnings, not "a pure function of future earnings". Most banks hold a decent amount of highly specialized, illiquid debts that have no active market and could reasonably be compared in terms of liquidity to real estate or capital goods.

cm2187 10y ago
I am not sure I understand your point. How is that different from what I wrote. And no, there are no line in an IFRS balance sheet for "human capital". [edit] and on your second point, I don't think I agree. You will pretty much always find a buyer for financial assets. Unless they are so rotten that no one thinks they are worth what you have them in your books for (which may be the case for some Italian banks). Where I think you are right to be careful with banks is with the size. If you need to wind down a massive international bank, you need to find buyers for a awfully large amounts of assets, and that will likely damage their value.
- roymurdock 10y ago
  > I am not sure I understand your point. How is that different from what I wrote. Yeah, we are on the same page, it was just a little nit as it seems weird to me to state that future revenues are the "pure" base for valuation when future is informed by current. Just semantics though. > You will pretty much always find a buyer for financial assets. Unless they are so rotten that no one thinks they are worth what you have them in your books At the right price you will find a buyer for anything. I was speaking to your point about liquidity, which is not about price of the asset, but about the quantity of interested buyers and the ease of structuring and executing a transaction with a buyer.
  - cm2187 10y ago
    But there are buyers for complex financial instruments. There are many hedge funds around who can do both size and complex products. And other international banks have the teams and system to buy a portfolio. But size is a problem. When you have 2 trillions $ of assets to sell, even if they are simple vanilla mortgages, it will be a buyer's market.
falsestprophet 10y ago
Future earnings are a multiple of current earnings. Any valuation in a multiple of current earnings... they're all numbers.
CydeWeys 10y ago
> but their value is generally a multiple of current earnings, not "a pure function of future earnings". Not sure what your objection is. The function is something like V = 3 * r, where V is the value of the company and r is the annual revenue. Boom, pure function.
- bllguo 10y ago
  Well future annual revenue would be based on current, so it can't be considered pure

cm2187 10y ago

I am not sure I understand your point. How is that different from what I wrote. And no, there are no line in an IFRS balance sheet for "human capital". [edit] and on your second point, I don't think I agree. You will pretty much always find a buyer for financial assets. Unless they are so rotten that no one thinks they are worth what you have them in your books for (which may be the case for some Italian banks). Where I think you are right to be careful with banks is with the size. If you need to wind down a massive international bank, you need to find buyers for a awfully large amounts of assets, and that will likely damage their value.

roymurdock 10y ago
> I am not sure I understand your point. How is that different from what I wrote. Yeah, we are on the same page, it was just a little nit as it seems weird to me to state that future revenues are the "pure" base for valuation when future is informed by current. Just semantics though. > You will pretty much always find a buyer for financial assets. Unless they are so rotten that no one thinks they are worth what you have them in your books At the right price you will find a buyer for anything. I was speaking to your point about liquidity, which is not about price of the asset, but about the quantity of interested buyers and the ease of structuring and executing a transaction with a buyer.
- cm2187 10y ago
  But there are buyers for complex financial instruments. There are many hedge funds around who can do both size and complex products. And other international banks have the teams and system to buy a portfolio. But size is a problem. When you have 2 trillions $ of assets to sell, even if they are simple vanilla mortgages, it will be a buyer's market.

falsestprophet 10y ago

Future earnings are a multiple of current earnings. Any valuation in a multiple of current earnings... they're all numbers.

CydeWeys 10y ago

> but their value is generally a multiple of current earnings, not "a pure function of future earnings". Not sure what your objection is. The function is something like V = 3 * r, where V is the value of the company and r is the annual revenue. Boom, pure function.

bllguo 10y ago
Well future annual revenue would be based on current, so it can't be considered pure