4 ms·

If only we could know what the "fair value" of an asset is...

brobinson 11y ago
China has nothing similar to GAAP, so as far as I understand it the "value" of a public company there is just a guess (rather than an estimate based on data) or an outright fabrication. No way to know unless you have access to the financials of the company itself.
- fooster 11y ago
  What makes you think there is no chinese GAAP? https://en.wikipedia.org/wiki/Chinese_accounting_standards https://en.wikipedia.org/wiki/Chinese_accounting_standards
  - brobinson 11y ago
    >similarity between the new Chinese accounting standards and the IFRS is almost 90–95% I didn't realize they had made these changes. Interesting. Historically, western investors avoided the Chinese markets because none of the data coming out of China could be trusted due to lack of transparency and the different reporting requirements. Thanks for the link.
    - fredkbloggs 11y ago
      > I didn't realize they had made these changes. Interesting. Historically, western investors avoided the Chinese markets because none of the data coming out of China could be trusted due to lack of transparency and the different reporting requirements. It still can't. The existence of standards does not imply compliance. I view the Chinese market as similar to Russia's: there are rules, but there are a lot of people who are effectively exempt from following them (at least until someone more powerful decides they aren't). Add in the lack of cultural taboos against defrauding others and it's a very difficult market. Accounting standards were (some might say still are) a problem, but not the problem.
      - brobinson 11y ago
        The Party's internal crackdown on corruption is apparently pretty comical according to mainland Chinese of mine as everyone there knows that pretty much everyone in power is hopelessly corrupt. C'est la vie.
digi_owl 11y ago
If it is shares, consider the total value of company holdings if it was all sold off that day. if you are looking at an asset price that is a multiple of that, you are basically betting the farm on the company staying afloat for decades.
- joosters 11y ago
  That doesn't answer the question, we still need to know the 'value of the company holdings', as you say. It's not the same as selling all the physical possessions of a company. You have to look at the income generated by the company, and then form an opinion of its worth. That's a subjective thing, so again we're back to the problem of determining a fair value. Basically, there's no formula for it. Or at least, no formula that everyone agrees on!
  - jqm 11y ago
    In a theoretical sense, yes. In a practical sense, from a conservative perspective there are ways to tell market pricing probably exceeds actual value. And authorities could take steps at that juncture. But everyone wants to keep the petal as close to the metal as possible and keep pumping growth hoping reality catches up eventually. Which results in well deserved wrecks from time to time.
- danmaz74 11y ago
  > If it is shares, consider the total value of company holdings if it was all sold off that day. So, value of every tech startup everywhere ~= 0
  - pavel_lishin 11y ago
    Depending on how you want to round it off, I guess. $EMPLOYEE_COUNT * ($PRICE_OF_MACBOOK + 5*$PRICE_OF_SODA) + $PRICE_OF_PING_PONG_TABLE
- howlingfantods 11y ago
  Enterprise value (total value of sold that day) is generally only used for liquidation scenarios. Usually for a going concern, the share price is calculated as the net present value of all future cash flows (dividends or sometimes earnings), usually as some variation of the dividend discount model.
durkie 11y ago
for real -- i feel like the entire existence of the stock market depends on lots of people disagreeing about what things are worth.
durkie 11y ago
for real -- i feel like the entire existence of the stock market depends on lots of people disagreeing about what things are worth.
tim333 11y ago
True it's tricky unless the company is just holding cash but you can get a rough idea if a market is reasonably valued by looking at measures like Tobins Q of price to cyclically adjusted earnings for stocks or prices compared to income and rents for property. A government can then say make it harder to borrow money for speculation if things look overheated. Apparently the Chinese market was trading at about 220 times earnings in April. Normal is like 10-20 times so it was looking pricey.

China has nothing similar to GAAP, so as far as I understand it the "value" of a public company there is just a guess (rather than an estimate based on data) or an outright fabrication. No way to know unless you have access to the financials of the company itself.

fooster 11y ago
What makes you think there is no chinese GAAP? https://en.wikipedia.org/wiki/Chinese_accounting_standards https://en.wikipedia.org/wiki/Chinese_accounting_standards
- brobinson 11y ago
  >similarity between the new Chinese accounting standards and the IFRS is almost 90–95% I didn't realize they had made these changes. Interesting. Historically, western investors avoided the Chinese markets because none of the data coming out of China could be trusted due to lack of transparency and the different reporting requirements. Thanks for the link.
  - fredkbloggs 11y ago
    > I didn't realize they had made these changes. Interesting. Historically, western investors avoided the Chinese markets because none of the data coming out of China could be trusted due to lack of transparency and the different reporting requirements. It still can't. The existence of standards does not imply compliance. I view the Chinese market as similar to Russia's: there are rules, but there are a lot of people who are effectively exempt from following them (at least until someone more powerful decides they aren't). Add in the lack of cultural taboos against defrauding others and it's a very difficult market. Accounting standards were (some might say still are) a problem, but not the problem.
    - brobinson 11y ago
      The Party's internal crackdown on corruption is apparently pretty comical according to mainland Chinese of mine as everyone there knows that pretty much everyone in power is hopelessly corrupt. C'est la vie.

digi_owl 11y ago

If it is shares, consider the total value of company holdings if it was all sold off that day. if you are looking at an asset price that is a multiple of that, you are basically betting the farm on the company staying afloat for decades.

joosters 11y ago
That doesn't answer the question, we still need to know the 'value of the company holdings', as you say. It's not the same as selling all the physical possessions of a company. You have to look at the income generated by the company, and then form an opinion of its worth. That's a subjective thing, so again we're back to the problem of determining a fair value. Basically, there's no formula for it. Or at least, no formula that everyone agrees on!
- jqm 11y ago
  In a theoretical sense, yes. In a practical sense, from a conservative perspective there are ways to tell market pricing probably exceeds actual value. And authorities could take steps at that juncture. But everyone wants to keep the petal as close to the metal as possible and keep pumping growth hoping reality catches up eventually. Which results in well deserved wrecks from time to time.
danmaz74 11y ago
> If it is shares, consider the total value of company holdings if it was all sold off that day. So, value of every tech startup everywhere ~= 0
- pavel_lishin 11y ago
  Depending on how you want to round it off, I guess. $EMPLOYEE_COUNT * ($PRICE_OF_MACBOOK + 5*$PRICE_OF_SODA) + $PRICE_OF_PING_PONG_TABLE
howlingfantods 11y ago
Enterprise value (total value of sold that day) is generally only used for liquidation scenarios. Usually for a going concern, the share price is calculated as the net present value of all future cash flows (dividends or sometimes earnings), usually as some variation of the dividend discount model.

durkie 11y ago

for real -- i feel like the entire existence of the stock market depends on lots of people disagreeing about what things are worth.

durkie 11y ago

for real -- i feel like the entire existence of the stock market depends on lots of people disagreeing about what things are worth.

tim333 11y ago

True it's tricky unless the company is just holding cash but you can get a rough idea if a market is reasonably valued by looking at measures like Tobins Q of price to cyclically adjusted earnings for stocks or prices compared to income and rents for property. A government can then say make it harder to borrow money for speculation if things look overheated. Apparently the Chinese market was trading at about 220 times earnings in April. Normal is like 10-20 times so it was looking pricey.