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You may know much more about this than me. Is Enterprise Value too simple a calculation to compare the companies? (you seem to be looking at the entire balance

You may know much more about this than me. Is Enterprise Value too simple a calculation to compare the companies? (you seem to be looking at the entire balance sheet, not just cash/debt) Certainly GM could issue stock tomorrow to increase their market cap to be more than Tesla's? Market cap just seems a bit arbitrary of a metric (as it doesn't take into account cap structure) when you're comparing the value of the digital economy and digital monopolies, etc (as the article does).

adventured 9y ago
> Certainly GM could issue stock tomorrow to increase their market cap to be more than Tesla's? That's not how it works. GM issuing shares tomorrow to raise cash, would not inherently boost the market cap. In fact, more likely given the context, shareholders would punish GM and push their valuation down. Shareholders would be spooked by such a move, they'd regard it as a bad sign for GM's operating picture. TSLA & GM are not being treated the same, or valued on the same basis. It's almost identical to the Walmart vs Amazon scenario in that sense. Cash is essentially never valued at a $1 to $1 basis in terms of representation in the market cap. It's discounted, as for numerous reasons it's not (and shouldn't be) worth 1 to 1 in practical terms. Debt is also frequently treated very differently from one company to another depending on the context. Comcast for example, has negative $59 billion in net tangible assets, and a mere $4 billion in cash (and most of their 'assets' are goodwill & intangibles); they have a terrible balance sheet. Yet their market cap is $181 billion, to go with $8 billion in net income. Shareholders, for various reasons, are giving Comcast a very sizable multiple and mostly ignoring the balance sheet (ie they don't regard it as a serious threat). GM has a vastly superior balance sheet, six times the cash, routinely ~50% higher quarterly net income, and yet is worth 1/3 what Comcast is.
- davidf18 9y ago
  I believe that much of the difference between Comcast and GM are because of number of customers who are revenue generators and the barriers to competition that Comcast would have compared with GM. While there might be many loyal GM purchasers, (I don't know that metric), Comcast does have competition for cable TV (e.g., many who are "cutting the cord") but not so much as an Internet provider, AFAIK. GM's high revenue/profit vehicles require a lot of gas compared with the lower revenue/profit vehicles and thus the projected cost of gasoline probably is part of the GM valuation. For now, and for the future, thanks to fracking and (relatively) low demand from China, it appears as if GM should be having increased profits. Regarding, Tesla's valuation, there must be some metric for customer acquisition.
tuna-piano 9y ago
@adventured But certainly if the GM entity had $10B more cash tomorrow, it might not be worth $10B more, but certainly it would be worth $5-$10B more (or at the very least >0 more)? And of course, they could use that $10B to pay off $10B of their existing debt as well. All I'm trying to say is that you probably shouldn't compare market caps of companies with vastly different capitalization structures to try and deduce a bigger picture idea of the economy. You should look at enterprise value. http://www.investopedia.com/terms/m/marketcapitalization.asp http://www.investopedia.com/terms/m/marketcapitalization.asp http://www.investopedia.com/terms/e/enterprisevalue.asp http://www.investopedia.com/terms/e/enterprisevalue.asp
- adventured 9y ago
  > But certainly if the GM entity had $10B more cash tomorrow, it might not be worth $10B more, but certainly it would be worth $5-$10B more (or at the very least >0 more)? No, again, that's not how it works. Shareholders value companies primarily based on a multiple of earnings with an overwhelming tilt toward future expectations, not based on cash. Cash can receive anywhere from a medium to a near-total discount, depending on the context & company. As an easy example: Apple's cash has stopped growing at the rate it used to (they're paying a lot of it out), while it has taken on immense debt in a short time, and its earnings have not expanded in years (in fact they've fallen as with sales, re fiscal 2016 vs fiscal 2015) - meanwhile, its stock has been given an increased multiple lately, AAPL is up 47% (adding $200+ billion in market cap, while earnings went down and debt went up) in the last year despite those theoretical negatives. Why? Shareholders mostly don't care about the accumulated debt or the slowdown in cash accumulation. There are a few exceptions, for example if a company is under serious bankruptcy risk. That can dramatically damage the valuation given to a company via its income. In that specific case, adding a ton of cash to relieve the bankruptcy risk, can produce a greater than 1x release in value as shareholders shift back to operating fundamentals & future expectations. Valeant Pharmaceuticals is a walking example of that right now. To the extent Valeant manages to lift the dark cloud of bankruptcy off of it, their market valuation will rise (every time they announce they've paid down some debt, or sell an asset for a good price, their stock tends to spike; they have something like $29b in long-term debt and the debt interest is threatening their existence; if they magically added $10 billion in cash tomorrow, their market cap would expand by something near a 1 to 1 basis or likely greater (depending on the bankruptcy pressure, relief from it can generate an amplified upside)). Another exception example: Las Vegas Sands (LVS), the casino giant, was under serious risk of bankruptcy during the economic crash in 2009; its founder, Sheldon Adelson, decided to back the company with a large amount of money, the stock proceeded to increase by 5x to 6x in a matter of a few months afterward, due to the relief that bankruptcy was no longer nearly so likely (shareholders shifted back to valuing the company on its future earnings/growth/operating expectations). LVS gained so much so quickly, because the risk of bankruptcy was viewed as being so severe it had drastically depressed the market cap of the company.
stale2002 9y ago
Issuing stock does precisely nothing to the valuation. IE, imagine if they double the amount of stock. Each stock is now half of the equity that is was before, so price would be cut in half.
- kgwgk 9y ago
  Issuing (and selling) shares DOES change the valuation. The price is not cut in half because the company is worth now more than before (it has lots of cash).

adventured 9y ago

> Certainly GM could issue stock tomorrow to increase their market cap to be more than Tesla's? That's not how it works. GM issuing shares tomorrow to raise cash, would not inherently boost the market cap. In fact, more likely given the context, shareholders would punish GM and push their valuation down. Shareholders would be spooked by such a move, they'd regard it as a bad sign for GM's operating picture. TSLA & GM are not being treated the same, or valued on the same basis. It's almost identical to the Walmart vs Amazon scenario in that sense. Cash is essentially never valued at a $1 to $1 basis in terms of representation in the market cap. It's discounted, as for numerous reasons it's not (and shouldn't be) worth 1 to 1 in practical terms. Debt is also frequently treated very differently from one company to another depending on the context. Comcast for example, has negative $59 billion in net tangible assets, and a mere $4 billion in cash (and most of their 'assets' are goodwill & intangibles); they have a terrible balance sheet. Yet their market cap is $181 billion, to go with $8 billion in net income. Shareholders, for various reasons, are giving Comcast a very sizable multiple and mostly ignoring the balance sheet (ie they don't regard it as a serious threat). GM has a vastly superior balance sheet, six times the cash, routinely ~50% higher quarterly net income, and yet is worth 1/3 what Comcast is.

davidf18 9y ago
I believe that much of the difference between Comcast and GM are because of number of customers who are revenue generators and the barriers to competition that Comcast would have compared with GM. While there might be many loyal GM purchasers, (I don't know that metric), Comcast does have competition for cable TV (e.g., many who are "cutting the cord") but not so much as an Internet provider, AFAIK. GM's high revenue/profit vehicles require a lot of gas compared with the lower revenue/profit vehicles and thus the projected cost of gasoline probably is part of the GM valuation. For now, and for the future, thanks to fracking and (relatively) low demand from China, it appears as if GM should be having increased profits. Regarding, Tesla's valuation, there must be some metric for customer acquisition.

tuna-piano 9y ago

@adventured But certainly if the GM entity had $10B more cash tomorrow, it might not be worth $10B more, but certainly it would be worth $5-$10B more (or at the very least >0 more)? And of course, they could use that $10B to pay off $10B of their existing debt as well. All I'm trying to say is that you probably shouldn't compare market caps of companies with vastly different capitalization structures to try and deduce a bigger picture idea of the economy. You should look at enterprise value. http://www.investopedia.com/terms/m/marketcapitalization.asp http://www.investopedia.com/terms/m/marketcapitalization.asp http://www.investopedia.com/terms/e/enterprisevalue.asp http://www.investopedia.com/terms/e/enterprisevalue.asp

adventured 9y ago
> But certainly if the GM entity had $10B more cash tomorrow, it might not be worth $10B more, but certainly it would be worth $5-$10B more (or at the very least >0 more)? No, again, that's not how it works. Shareholders value companies primarily based on a multiple of earnings with an overwhelming tilt toward future expectations, not based on cash. Cash can receive anywhere from a medium to a near-total discount, depending on the context & company. As an easy example: Apple's cash has stopped growing at the rate it used to (they're paying a lot of it out), while it has taken on immense debt in a short time, and its earnings have not expanded in years (in fact they've fallen as with sales, re fiscal 2016 vs fiscal 2015) - meanwhile, its stock has been given an increased multiple lately, AAPL is up 47% (adding $200+ billion in market cap, while earnings went down and debt went up) in the last year despite those theoretical negatives. Why? Shareholders mostly don't care about the accumulated debt or the slowdown in cash accumulation. There are a few exceptions, for example if a company is under serious bankruptcy risk. That can dramatically damage the valuation given to a company via its income. In that specific case, adding a ton of cash to relieve the bankruptcy risk, can produce a greater than 1x release in value as shareholders shift back to operating fundamentals & future expectations. Valeant Pharmaceuticals is a walking example of that right now. To the extent Valeant manages to lift the dark cloud of bankruptcy off of it, their market valuation will rise (every time they announce they've paid down some debt, or sell an asset for a good price, their stock tends to spike; they have something like $29b in long-term debt and the debt interest is threatening their existence; if they magically added $10 billion in cash tomorrow, their market cap would expand by something near a 1 to 1 basis or likely greater (depending on the bankruptcy pressure, relief from it can generate an amplified upside)). Another exception example: Las Vegas Sands (LVS), the casino giant, was under serious risk of bankruptcy during the economic crash in 2009; its founder, Sheldon Adelson, decided to back the company with a large amount of money, the stock proceeded to increase by 5x to 6x in a matter of a few months afterward, due to the relief that bankruptcy was no longer nearly so likely (shareholders shifted back to valuing the company on its future earnings/growth/operating expectations). LVS gained so much so quickly, because the risk of bankruptcy was viewed as being so severe it had drastically depressed the market cap of the company.

stale2002 9y ago

Issuing stock does precisely nothing to the valuation. IE, imagine if they double the amount of stock. Each stock is now half of the equity that is was before, so price would be cut in half.

kgwgk 9y ago
Issuing (and selling) shares DOES change the valuation. The price is not cut in half because the company is worth now more than before (it has lots of cash).