Timeline for Why do we ONLY care about the future of companies like Netflix? It was very profitable in the past
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29 events
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Dec 29, 2022 at 16:19 | comment | added | Grade 'Eh' Bacon | @jack When a company earns cash, it either (1) gets paid out as dividends; OR (2) repays company debt; OR (3) invests in long-term projects; OR (4) is used for short-term spending. When it does #1, the investor gets immediate payout. When it does #2, the investor now owns a company with less debt. When it does #3, the investor now owns a company with more long-term potential. When it does #4, some amount of value is added that is very hard to quantify. For #2-4, it is quite likely that you can't discern the impact of that cashflow change as a retail investor. You are arguing they are useless. | |
Dec 27, 2022 at 4:20 | comment | added | David Mulder | @Jack whether a company owns cash or spends the cash on non-cash assets doesn't really change anything. They both go into the value of the company. Of course different assets can appreciate and depreciate differently, but the value of "stock + dividend" vs "stock of company not paying dividends" is exactly the same in that moment in time. Beyond that it just becomes a a question of who can invest better: you or the company. | |
Dec 27, 2022 at 0:31 | comment | added | Jack | Therefore said "dividend company" in year 4 (using a discount rate o f8 percent) 1 dollar every year for 5 years - would equal 3 dollars PV. So your total "Equity" would be 7 dollars (4 in dividends +3 in stocks value)AND the non-dividend comapany (since it reinvested every year ) it is able to grow at 15 percent - 1 ( 1 + .15 ) to the 5th Power discounted back equals 7. NOW BOTH DIVIDEND PAYING AND NON DIVIDEND PAYING HAVE THE SMAE VALUE(SO AN investor wants it to grow at least 15 percent otherwise you should have just given dividends) | |
Dec 27, 2022 at 0:19 | comment | added | Jack | Though if you received dividends each year you would have $4 already in your bank account BESIDES for the future earnings. Perhaps to answer my own question. Since the company is investing the money for future growth THE market assumes the company will have MUCH better future prospects then the company that distributed dividends | |
Dec 27, 2022 at 0:12 | comment | added | Jack | @DavidMulder@GradEhbacon (As we have discussed ) in Year 4 (assuming the company spent the cashflows from year 1 - 3 ) the company no longer has that cash , so its value wouldn't be $4 from the past 4 years (maybe because of future expected revenue but not the past revenue) | |
Nov 18, 2022 at 20:32 | comment | added | Grade 'Eh' Bacon | @jack What do you mean "it's not" - is there a specific calculation where you aren't getting this result? DCF = cashflow in year 1 + cashflow in year 2 + cashflow in year 3... etc., assuming you take those future values in today's dollars, because money today is worth more than money received tomorrow. I will repeat what I said last week - you seem to be very out of your depth here, you do not seem to be as close to understanding things as you appear to believe; for your sake please make sure you spend a lot of further research before you decide to invest in stocks (if ever). | |
Nov 18, 2022 at 19:13 | comment | added | Jack | @DavidMulder according to that (if a company doesn’t pay dividends it’s worth the same) then each years cash flows should go into the stocks value. Year 1 - $1 FCF , Year 2: $2 , Year 3: $1 so in year 4 value SHOULD BE $4 but it’s not. | |
Nov 9, 2022 at 19:06 | history | edited | Grade 'Eh' Bacon | CC BY-SA 4.0 |
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Oct 24, 2022 at 13:18 | comment | added | Grade 'Eh' Bacon | Simplistic dividend valuation model would be: Share Value = Annual Dividends / (Required Return - Company Growth). If you start with annual dividends of $1 / share per year, and the required return [basically how much riskier the company is compared to a 'risk free' government bond] is, say, 10%, and the Company Growth is estimated at 3%, then estimated share value would be $1 / .07 = $14.2. Notice that 10 years of dividends would only be $10 received slowly over time, so this model does not only count the next 10 years of dividends. Again - this is overly simplistic to give you an idea. | |
Oct 24, 2022 at 13:14 | comment | added | Grade 'Eh' Bacon | @jack you might have a '10 year time horizon', but market price isn't just what YOU are willing to pay for a share - it is the collectively agreed price by all participants in the market. Most large public companies are valued in a way that factors in faaaaar more than just 10 years of dividends. And because you can't perfectly predict the future, it is quite natural that the past 10 years won't equal what the market assumed it would in the past 10 years. This is where 'market sentiment' can start to break away from calculable value, if a significant number of investors are overly optimistic. | |
Oct 23, 2022 at 2:17 | comment | added | Jack | So I don't understand, a companies value , is its future cashflows (discounted back plus its current cashflows). And lets assume you have a 10 year time horizon , after 10 years the value of the company does not reflect the past 10 years cashflow!? (if every year , its value increases based off that years cashflow , and at the end of the 10 years , all the past cashflows were part of its valuation. I would understand) p.s thanks every for helping out | |
Oct 23, 2022 at 2:06 | comment | added | Jack | @user253751 but with stocks isn't that how it usually is. Most companies you aren't getting ALL your money back through dividends , rather (hopefully) selling the shares at a higher price. | |
Oct 23, 2022 at 2:00 | comment | added | Jack | @SafeFastExpressive And if it is reinvesting and purchasing assets (lets assume that are "liquid") does the value also increase because of that? | |
Oct 22, 2022 at 21:33 | comment | added | Valorum | @BeB00 - Yes. Dat is the joke | |
Oct 22, 2022 at 21:29 | comment | added | BeB00 | @Valorum I'm not sure I would necessarily call a $670bn market cap "low" for a company with $68bn-revenue and $10bn-profit | |
Oct 22, 2022 at 18:10 | comment | added | Valorum | @SafeFastExpressive - This formula is why Tesla's shares are so low. They persistently miss their earnings targets, are beset by supply shortages and their competition is eating heavily into their (fairly limited to begin with) market share. | |
Oct 21, 2022 at 13:43 | comment | added | Grade 'Eh' Bacon | @DavidMulder Home ownership is not equivalent to stock ownership. The difference is that a company is hopefully productive with its assets - homes are depreciating assets requiring maintenance to maintain value, except for the fact that the value of the house (and especially the land it sits on) will rise and fall based on supply and demand in the local area. | |
Oct 21, 2022 at 6:07 | comment | added | David Mulder | @user253751 If you buy a house it doesn't pay you dividends, but in the future you can sell it for less or more. It's 'exactly' the same with stock (but stock is of course more liquid, but the ownership relation is... more nuanced) | |
Oct 21, 2022 at 0:05 | comment | added | SafeFastExpressive | @Jack The core theory of value investing is that a company is worth its future stream of earnings discounted for time plus existing net asset values. The reasoning is that management will distribute earnings as dividends, or by buying back shares (increasing your percentage ownership of current and future earnings), or reinvesting it at reasonable returns. If run by a CEO who throws away earnings in terrible investments or a controlling shareholder who diverts earnings to their own pockets, not true. But those are rare situations. | |
Oct 20, 2022 at 19:23 | comment | added | Criticizing Israel not allowed | @DavidMulder ... which you can get back in dividends or liquidation later. Important to note that. I wouldn't pay a cent for $1000 of "my" money if there was no chance of getting it back, no matter how many times you called it "mine" | |
Oct 20, 2022 at 5:53 | comment | added | David Mulder | @Jack The basic idea is that even if a company doesn't pay any dividends it just means that the same money is put in the coffers of the company (company A), thus increasing the value of the company proportionally and thus also 'your' (if you believe and have faith in the idea of stock market ownership) money. | |
Oct 19, 2022 at 21:24 | comment | added | Criggie | I'll offer you $3.50 for company A, cash here and now.... | |
Oct 19, 2022 at 20:09 | vote | accept | Jack | ||
Oct 19, 2022 at 18:53 | comment | added | Grade 'Eh' Bacon | @jack It is a common misconception that shareholders don't "really" get the value of a company, and that dividends are basically paid at the whim of the company's CEO, but in reality, company profits after paying off debts are attributable solely to the shareholders. Whether they are paid out annually as dividends or only in the future, is not relevant. There are many questions about this on the site - see for example here: money.stackexchange.com/q/51976/44232 | |
Oct 19, 2022 at 18:43 | comment | added | Jack | But you are (mostly) not receiving the earnings in the future (especially when there are no dividends or buybacks) if you received all the earnings tha the company will make in the future I would understand.(to my simple Understanding since the company made more money it’s value grew so it’s worth more) | |
Oct 19, 2022 at 18:13 | vote | accept | Jack | ||
Oct 19, 2022 at 20:09 | |||||
Oct 19, 2022 at 14:30 | history | edited | mhoran_psprep | CC BY-SA 4.0 |
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Oct 19, 2022 at 14:23 | history | edited | Grade 'Eh' Bacon | CC BY-SA 4.0 |
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Oct 19, 2022 at 13:12 | history | answered | Grade 'Eh' Bacon | CC BY-SA 4.0 |