P/E conundrum | Stocks and bonds | Finance & Capital Markets | Khan Academy
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- Опубліковано 19 сер 2009
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A situation where the price to earnings ratio seems to not fairly price an asset. Created by Sal Khan.
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@William Liusudarso I am still not certain what is going on here but here is what I think. Everything you said is correct, except when you look at a balance sheet, the reason its called a balance sheet is because everything needs to be equal. The debt is a part of the company so therefore it cannot be ignored, it is valuable to the company which is why the price is 289 and not 189. And since the balance sheet must be, well, balanced the asset value implicitly must be the same value. It doesn't really make sense to me but I guess this is why its a conundrum
Long A and short B because there is a spread play here. With same product, the valuation numbers he used are correct; however, the market should correct as the market cap wouldn't stay that similar for long between the two. Company B should have a few thousand shares in real life to make this more believable numbers as this conundrum won't come up very often without a hype play. And if it's a hype play, fundamentals don't matter anyways.
thank u sir
hm, yeah, I have same thinking as you, sir. therefore his ROE is 890%, while his competitor ROE is 105%.
Hi, how does leverage impact PE ratios (presuming in the same industry, same growth rates etc)?
The premise Sal started with is that the two companies have "IDENTICAL ASSETS".
THEY DON'T. The assets of company A are $100k, while the assets of company B are $110k.
I have read comments that say that those extra $10k are just cash or a non operating asset. That's false, because the profit generated by that $10k is taken into account in the income statement of company B.
My point is that the assets of company B were higher than A's in the beginning, so WE SHOULDN'T BE SURPRISED THAT THE MARKET'S VALUATION OF THEIR ASSETS CAME TO THE SAME CONCLUSION (A $210k < B $289k)
You're a god. Wish you were my dad!
This video makes me hungry for "peedza"
Does anyone know what program this guy is using?
OBS!!! Please note that: When you talk about a second or third video to expand on the subject we never find them! The lists are not in such order to make it possible to find the following video, no numbers or consistent titles. It will be greatly appreciated if you put more structure to your videos. Many thanks in advance. I learn a lot from you :)
hmmmm pork belly futures... seems like a very interesting investment :D :D :D
yeah, I'm pretty confident now that he makes a mistake right there.
Earning x P/E ratio = Stock Price.
(1.89) x (10) = $18.90
Stock Price x Share Outstanding = Market Capitalization
(18.90) x (10,000) = $189,000
Market capitalization can be assume as the price of the entire company (asset, or liabilities + equity) at the current stock price.
therefore the company value suppose to be 189k not 289k. the appreciation of the equity should be from 10k to 89k.
Pork belly futures.. Trading Places?
And that's why we see what we are seeing now... It is because of leverage of capital. That is why the stock market keep on booming. It is because of debt and low interest rates. Market 210 k verus 289k... but the market price its assets at 279k... Getting to today's reality if things start to rattle investors ,bankrupty etc and de-leverage kicks it could spell problems for companies with high debt. Zombie companies..
Haha, if this pizzeria were to go under, it would bring down the whole financial system.
Why don't you put the expenses and negative values in parentheses? I thought it was common in accounting to do that.
If the business is valued at 189K , doesn't that just mean his equity increases from 10K to 89K while keeping the 100K debt. I don't get why the business is suddenly worth 289K?
Earnings determined the share price x that by number of shares = 189k. It is however unusual to have that earnings when you need to finance debt. But then again it is a hypothetical example
I think it's just microsoft paint.
there is flaw in the assumption how can u assume same no. of shares for both when the first has100% equity and second has 10% equity. .............
The number of shares have nothing to do with capital structure. Share price can easily be adjusted through stock splits, buy backs, and reverse splits while maintaining market cap the same.