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I'm trying to answer the questions: "if I owned all of a company, how much would I make?" and "once I know that, how much should I pay?"

Let's say I owned Wal-mart outright (took it private and owned 100% of the company). I'm not paying off all its debts so we'll leave interest expense, etc. the same. For this discussion, ignore any minority interest. I believe I would earn:

  • all of the net earnings. That's after taxes, after interest, after capex - the Net Income on the income statement. For 2018, that was $10,523 billion.

  • all of the dividends. From 2018's Cash Flow Statement, that puts another $6,124 billion in my pocket.

  • all of the share buyback money. Again from the 2018 CFS, that's another $8,296 billion I get.

Adding these three, Wal-mart throws off about $24,943 billion per year. I say "throws off" in the accounting sense, not the free cash flow sense.

If I spent $100bn to buy Wal-mart, I'd earn about 25% annual return. If I spent $400bn, it'd be only a 6% return. I'd want my return to at least equal an index fund, and perhaps a bit more since it's riskier, so 10-15% return would mean I'd value Wal-mart at maybe $150-250bn.

Obviously, I'm ignoring future growth prospects, which greatly complicates the math, but let's pretend for a moment that Wal-mart is going to perform exactly as it did in 2018 for the foreseeable future. With that assumption, am I thinking about these numbers correctly?

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    Aren’t dividends paid out of net earnings? I’m not sure you should be adding these together. (Same for stock buyback.) – prl Mar 2 at 21:02
  • For clarity, the commas are used as decimal points here ($25 billion not $25000 billion). – nanoman Mar 2 at 21:08
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    @nanoman: For clarity, while comma as a decimal point is a fairly widespread convention, with quantities denominated in US Dollars the convention is to use a dot. – Ben Voigt Mar 2 at 22:21
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    If you owned all shares of walmart, how will a share buyback affect you ? Do you just pay yourself for a share that you then give yourself ? – xyious Mar 4 at 17:09
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The return you are calculating is the earnings yield, the inverse of the P/E ratio. If you assume that "Wal-mart is going to perform exactly as it did in 2018 for the foreseeable future", then you would value the company like a low-risk long-term bond. Returns on those are under 5% these days. The long-term return on stocks (or stock index funds) is higher because of earnings growth. That is the main factor in their valuation, and also contributes substantial risk. While delivering their typical 10% total return, stocks rarely get cheap enough to buy at a 10% earnings yield.

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