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Couldn't it transform into a high-dividend company?

• JumpCrisscross 5y ago
  > Couldn't it transform into a high-dividend company? This is cigarette-butt investing. It ignores terminal value. If the terminal value is already close to zero, it's the right move, an orderly wind-down and re-allocation of assets. If there is terminal value, it's a pillaging. Cases like these, where the terminal value starts looking more theoretical than practical, are how those incentives shift.
  • rswail 5y ago
    What happens in the situation where there isn't a "terminal" point for a company? Coca-Cola has no reason to "terminate" itself, so why shouldn't it distribute profit excess to its operating requirements back to shareholders?
    • ttt333 5y ago
      The terminal point doesn't necessarily have to apply for the company, or even the financial asset based on the company. There is an simple model in finance [1] that collapses an infinitely growing stream of cash flows into a finite present value. So to your example of coca-cola, even if you assume they will exist and distribute growing profits forever, you can still find a terminal value. [1]: https://corporatefinanceinstitute.com/resources/knowledge/valuation/gordon-growth-model/ https://corporatefinanceinstitute.com/resources/knowledge/va...