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Sometimes people wonder how the market value of a company can be less than the value of their cash reserves in an efficient market. GM is a case in point.
by danteembermage 18y ago
Sometimes people wonder how the market value of a company can be less than the value of their cash reserves in an efficient market. GM is a case in point.
- mtw 18y agothe market value is tied to the amount of money that a company can generate (profitability). the profits are in theory given back to investors. this is why software companies which have very low capital expenditures have very high market value, since software companies are most of the time very profitable (Microsoft)
- etal 18y agoThe market value is related to current assets and expected future earnings minus liabilities. If the liabilities are greater than the expected future earnings, the company could be worth more dead than alive. Pension obligations are more brutal than most workers realize; the city of San Diego has had massive financial problems because of that too. It's usually dismissed by young employees (rationally), but it shows up on the supporting organization's balance sheet in a big way. And as far as future earnings go: gas prices shot up for enough consecutive summers that consumers finally adapted; the demand curve shifted. Gas prices have dropped recently, but consumer preferences have already changed, and economic concerns still aren't making SUVs and big trucks any more financially attractive. In short, investors are saying that GM should be stripped and sold for parts.