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What is the future of money?

P/E Ratios: What is a good way to value a company that is making a loss but will make money in the future?

  • I am involved in a company that over the years spent 7-8 million in developing IT software products. Like some IT companies it was not strong on sales as its management team lacked good sales and marketing leadership. The company has a fantastic range of products and is now going on an aggressive sales and marketing drive to get new customers. However, the shareholders want out now. The company currently makes a $500,000 loss per annum but the gap is closing. With all the new products and an aggressive sales strategy the company will be in the black in the next 7-8 months and has projected revenue of around 40mil in 4 years. The shareholders want top dollar so how do we value the company? I.e. it is currently losing money and will make money in the future if the sales go as per projections.

  • Answer:

    This is a very complex subject, with numerous alternative approaches; you would be well advised to read the Wikipedia page as a primer - http://en.wikipedia.org/wiki/Business_valuation#Capital_Asset_Pricing_Model_.28CAPM.29.

Nicholas Flandin at Quora Visit the source

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It Depends Upon many factors 1. Cyclical Nature of business -  if business is cyclical ,  then it will have  cyclical time when a sector is doing good and sector is doing bad , e.g   LCV/HCV business do good when overall economy doing good , so these companies will have cash crunch when cycle is bad, but when cycle turns good, stocks of companies will show a major up move , 2.  Change of Management 3.  Cutting on Debt : sometimes companies showing steady revenue growth but  due to high interest charges on debt which it is taking  ,  the all Profit being wipe out , you have to check if company making any effort to reduce debt and what its doing to  reduce debt , if u spot company which is reducing debt and good Speed with steady increase in revenue then u have found potential  multibagger FCCB , CDR and Stake Sell are ways to reduce debt

Aadesh Chhajed

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