Real Value

  

Categories: Company Valuation

What’s the real meaning of life? The real value?

Don’t ask an economist, because it won’t be the philosophical answer you were hoping for.

The value of a thing is different to different people. You may value your dog, while your neighbor sees your dog as his worst enemy. But in economics, “value” refers to market value. What are people willing to pay for this thing?

Real value then, is what people are willing to pay for the value...taking out inflation. The nominal values of goods are all around us: they’re the price tags in our faces. But things get more expensive. Grandma will tell you; back in the good ol' days, gas was under a dollar, and it cost fifty cents to go to the movies.

The real value of goods is that nominal amount we’re used to seeing, subtracting inflation. If you took the real value of movie tickets now and the real value of movie tickets when their nominal price was fifty cents a pop, you can see if people are willing to spend more or less on movies today compared to back then.

Real values allow us to compare prices of things over time, even as inflation climbs. College costs and healthcare costs in the U.S. are two good examples. The real cost of these goods has risen a lot. That’s why, back in the day, you could pay for college by waiting tables at night, and you can’t today. We still try though.

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Finance: What is stock based compensatio...7 Views

00:00

Finance a la shmoop What is stock based compensation While

00:07

investors want management with skin in the game when your

00:11

ceo has ninety eight percent of her net worth tied

00:14

up in the stock of the company that she's running

00:17

well presumably she runs it better or at least in

00:19

theory anyway So over time management has been paid in

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equity ownership grants as well as in cash that is

00:27

company management gets paid in stock options and in stock

00:31

or rather shares of the company simply granted to them

00:34

in lieu of cash Why do companies not just pay

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cash while they want management toe Have that whole ownership

00:42

thing going for them to act like owners You know

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not just like union employees They want management with direct

00:48

stakes in how well or pa poorly the business per

00:51

forms in the long run and think about the dynamics

00:55

of a ceo getting paid even a relatively huge million

00:58

dollars a year in salary and nothing else that's it

01:02

well that ceo takes a company from four hundred million

01:06

dollars in sales and thirty million in profits to five

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years later two billion dollars in sales and for three

01:13

Hundred million in profits that is the ceo made the

01:16

company at least ten times more valuable certainly ten times

01:20

more profitable and in five years that's really good But

01:23

that ceo just got their single million dollars a year

01:26

each year along the way Well that ceo would not

01:29

have financially participated personally in making shareholders so much wealthier

01:35

and that's not fair right If management of the company

01:38

makes huge returns for investors doesn't it seem right that

01:41

management should have huge returns for themselves and not just

01:45

a basic salary and male Maybe a little bit of

01:47

a bonus there too well some companies loan money at

01:51

low interest rates to ceos and other top execs so

01:54

that their ableto buy shares in the company leveraged well

01:58

Other companies just grant shares to management and still others

02:02

just grant stock options is kind of a spiff above

02:05

their cash compensation So yeah it's all about having skin

02:08

in the game which if you play football without sufficient 00:02:11.45 --> [endTime] padding is a definite possibility

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