WATCH: Table Talk — How Much Is elitefts Worth?

TAGS: growth investment, cash flow, company worth, question and answer, business, investment, instagram, Q&A, dave tate, Elitefts Info Pages

You want to know how much a company is worth? That's not a simple answer, even for the most experienced corporate minds.

Here, let Steve explain it to you:

A business is worth whatever someone is willing to pay for it, which usually is the sum of it's base value adjusted for any positive or negative synergies resulting from the purchase.

Historical earnings and cash flows are only relevant to the extent that they allow a statistical basis to project future cash flows so someone can decide what they might be willing to pay.

Any asset (business) is intrinsically worth the present value of its future cash flows available to shareholders in perpetuity, discounted to the present day (T=0) at some discount rate. That discount rate is a function of risk (volatility and probability of realizing the cash flows) and liquidity of the investment.

As long as a company is positioning itself to produce future cash flow in a meaningful and scalable way, historical earnings and cash flow are irrelevant.

Look at the 'unicorns' out in Silicon Valley. None of them make money and they are all worth billions based on zero earnings today, but the expectation that they will generate tons of cash in the future.

This is also where public companies are at a disadvantage versus private. In exchange for cash in the equity markets, they subject themselves to all kinds of pressure from short term stockholders to produce current quarter EPS, often to the detriment of long term growth investments.

Accountants are not finance people. Accountants report history. Finance people provide decision support by understanding risks and trends and applying them to forward looking scenarios.

The topic goes even deeper than that explanation. When an Instagram user recently asked Dave Tate what elitefts is worth, Dave had a lot to say about it.

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