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If my business is valued at a million dollars and I take out a loan for a million, my business is now valued at 0. That’s basic accounting. Amazon had a net inc

If my business is valued at a million dollars and I take out a loan for a million, my business is now valued at 0. That’s basic accounting. Amazon had a net income of 14B last year - no one will let them borrow anything close to their market cap, much less 10X it. Edit: This assumes I spend my loan on payroll which is what the OP originally suggested.

vikramkr 4y ago
Your original million doesnt go anywhere. If you start with a million and borrow a million, you now have 2 million in assets and 1 million in liabilities. Your valuation is not zero.
- s1artibartfast 4y ago
  Now, If you pay one million to workers, you are now at zero
iso1631 4y ago
> If my business is valued at a million dollars and I take out a loan for a million, my business is now valued at 0. No, my business would have the existing assets of $1m, new assets of $1m in cash a liability of $1m, leaving a value of $1m (minus any interest payments)
darkwizard42 4y ago
I think you might be misunderstanding how liabilities and assets work. If your business is valued at 1 million already, it means your assets and liabilities net out to $1M. Taking out an additional loan for $1M just gives you $1M in assets AND $1M in liabilities (assuming this is before interest kicks in)... so your business valuation is actually neutral. Now, if you squander the $1M and don't generate more than $1M+interest, your business will lose value... but you would have to lose $2M to then increase your liabilities to wipe out your original valuation
gamblor956 4y ago
No, your edit still ignores something else: at the time you took out the loan, you already had a liability for those employee salaries of $1M, so the $1M valuation means that you had at least $2M in assets. Acquiring the loan moves you up to $3M in assets (original assets, plus $1m cash from the loan) and $2M in liabilities (employee salaries + $1M loan) When you pay those employee salaries, you wipe out the salary liability and the $1M cash asset from the loan. This leaves you the original $2M in assets, and the $1M loan, for a net valuation of...$1M. Basically, the loan ends up replacing the salaries as a liability on your balance sheet.

vikramkr 4y ago

Your original million doesnt go anywhere. If you start with a million and borrow a million, you now have 2 million in assets and 1 million in liabilities. Your valuation is not zero.

s1artibartfast 4y ago
Now, If you pay one million to workers, you are now at zero

iso1631 4y ago

> If my business is valued at a million dollars and I take out a loan for a million, my business is now valued at 0. No, my business would have the existing assets of $1m, new assets of $1m in cash a liability of $1m, leaving a value of $1m (minus any interest payments)

darkwizard42 4y ago

I think you might be misunderstanding how liabilities and assets work. If your business is valued at 1 million already, it means your assets and liabilities net out to $1M. Taking out an additional loan for $1M just gives you $1M in assets AND $1M in liabilities (assuming this is before interest kicks in)... so your business valuation is actually neutral. Now, if you squander the $1M and don't generate more than $1M+interest, your business will lose value... but you would have to lose $2M to then increase your liabilities to wipe out your original valuation

gamblor956 4y ago

No, your edit still ignores something else: at the time you took out the loan, you already had a liability for those employee salaries of $1M, so the $1M valuation means that you had at least $2M in assets. Acquiring the loan moves you up to $3M in assets (original assets, plus $1m cash from the loan) and $2M in liabilities (employee salaries + $1M loan) When you pay those employee salaries, you wipe out the salary liability and the $1M cash asset from the loan. This leaves you the original $2M in assets, and the $1M loan, for a net valuation of...$1M. Basically, the loan ends up replacing the salaries as a liability on your balance sheet.