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> Surely, that $5M is a loss for the purchaser, and profit for the seller, no? You don’t know that. In theory a company pay a premium because of future growth
by ffgjgf1 3y ago
> Surely, that $5M is a loss for the purchaser, and profit for the seller, no?
You don’t know that. In theory a company pay a premium because of future growth expectations. I don’t think land is a good example though because it’s relatively easier to value.
If you look at publicly traded companies most have a market cap higher or way higher than their book value (tangible/“real” assets). If another company ends up acquiring a public company that difference will simply be accounted as “goodwill” on their balance sheet
- deleted 3y ago[deleted]
- JohnFen 3y ago> You don’t know that. Sure I do. It's right there in the basic math. > In theory a company pay a premium because of future growth expectations. Yes, but until that growth happens, it doesn't exist. So it doesn't change the fact that, at the time of the sale, a loss was incurred. To treat the expectations of future growth as a current asset is what seems shady to me. It's just making things up.
- ffgjgf1 3y agoSo imagine you buy some stock from of a public company for $100. It’s book value is $5. Do you get to immediately record a loss? What sense would it make? This is the same. > current asset is what seems shady to me Why? How? Do you believe all the things you don’t understand are somehow shady? Goodwill depreciates over time so you just incur the same loss just spread out over multiple years. > at the time of the sale, a loss was incurred. An asset is worth what a purchaser is willing to pay for it. There is no loss incurred until you sell it.