Price versus Value
In finance, we use words like price and value, as if they were interchangeable. I have been guilty of this myself at times. It is worth noting, price and value not only come from different processes, but are determined by different variables and yield different numbers at the same point in time.
The essence of value comes from a company’s fundamentals, (i.e., capacity to generate profits). Fundamental financial information causes changes in a company’s earnings, growth expectations, risk factors, and value drivers will change its value.
Price is a market process, where demand and supply intersect to produce a price for an asset (i.e., operating business). While that demand may be affected by the financial information, it is more immediately a function of the market participant’s mood, and sentiment for risk based on economic conditions.
Some old-time value investors’ concept of value is tied to dividends and other value investors are more open to measuring cash flows. To me, the one area where there should be an agreement across all investors is that, every business valuation should be backed by a narrative that not only provides structure to the numbers in the valuation report, but also provides them with creditability.
If you believe, like I do, that investing requires one to constantly revisits and revalue companies you already have or wish you had in your portfolio. Earnings provide a timely reminder that no valuation is timeless.
How can American Business Appraisers Help?
Call us to discuss any specific valuation needs. Every individual situation is different and not everyone requires our appraisal services. Sometimes, just talking with one of our appraisers is all that may be necessary. With our initial consultation, there is no cost or obligation to you. We promise you two things; first, to invest a reasonable amount of time to gain an understanding of your specific requirements, and second, our communication will be kept confidential.