Markets

When doing financial planning for businesses it is necessary to place a value on the business. There are three common ways to do this. First if your take home profit is $10,000 you calculate how much money you need in the bank to earn that much net. If CD's are paying 5% then 10,000 divided by .05 or $200,000 in the worth before taxes. A second way is replacement. How much would it cost to replace the current assets while adding some value to existing customers and company reputation, things called blue sky. The third is used for public traded companies and you multiply the current value of the stock times the number of outstanding shares. This last way was used often but does it really represent the value. Take today's market situation. Are we to believe that the value of GM as a company has decreased by $18 billion dollars in one week. All the major drops in the market have been reversed usually in short order. In 1987 the market dropped 22% in one day. That is the total of what the market has dropped in the last two weeks. In two years it completely recovered. If you sell you lock in your losses but if you wait history tells us that you will recover.