It can be defined by the net present value of the future dividends of the stock. Alternately, it can be determined by the per-share liquidation value of the company’s assets (after creditors are paid).
So if the stock does not pay dividends, and never will, and the corporation’s assets equal its liabilities, and always will, then the appropriate value of the stock is, in fact, zero? (Well, there are voting rights, but still...)
No, the value also includes the NPV of future net earnings, even if they are not currently being paid as dividends. When you value a business for the purpose of selling it, revenue, assets and intangibles like brand awareness are all things you look at.
Also if a company’s assets = its liabilities then it has not been profitable or its losing money (or its a very new business). Obviously failing businesses are not worth anything and stock prices reflect that; but a business that is earning a net profit has a value regardless of if dividends are paid. If dividends are not paid they are re-invested in the business, which isn’t really different from you getting the dividend and investing it in that or some other stock except that you are giving the company’s management credit for making wise investments (bonuses are an expense and are sub-tracted from net income and so are not relevant here).
It can be defined by the net present value of the future dividends of the stock. Alternately, it can be determined by the per-share liquidation value of the company’s assets (after creditors are paid).
So if the stock does not pay dividends, and never will, and the corporation’s assets equal its liabilities, and always will, then the appropriate value of the stock is, in fact, zero? (Well, there are voting rights, but still...)
No, the value also includes the NPV of future net earnings, even if they are not currently being paid as dividends. When you value a business for the purpose of selling it, revenue, assets and intangibles like brand awareness are all things you look at.
Also if a company’s assets = its liabilities then it has not been profitable or its losing money (or its a very new business). Obviously failing businesses are not worth anything and stock prices reflect that; but a business that is earning a net profit has a value regardless of if dividends are paid. If dividends are not paid they are re-invested in the business, which isn’t really different from you getting the dividend and investing it in that or some other stock except that you are giving the company’s management credit for making wise investments (bonuses are an expense and are sub-tracted from net income and so are not relevant here).