CNET.com - "Why Microsoft Should Aquire Sony's Gaming Division"

[Ail]

Pristine20 said:

NJ5 said:

Pristine20 said:

I just found out that PetroChina is more valuable than ExxonMobil even though it made less profit. What gives?

 

The latest company profits don't matter that much. For example, many banks have lost a lot of money recently, but that doesn't mean they don't have assets anymore.

What can happen is that when a company makes small profits or loses money for a long enough time, investors can decide that it means the assets are not worth as much anymore. As a consequence, there will be a sell-off and the stock price (and market cap) will go down.

 

 

 Yeah but isn't that what explains HSBC's $2 trillion asset  worth vs its $180 billion market value?

 

 A bank's assets has little relationship to its market value as banks have huge liabilities in term of loans for example ( every bank has huge loans with others banks).

If you want to have an idea of the real value of HSBC independantly of its market value you have to look at its book value.( which is sometime called net assets, it's assets minus liabilities and depreciation).

 

Looking only at total assets is like saying you are worth 300k $ because that is what you paid for your house but forgetting to mention you have a 250k mortgage to repay :p

In that case your book value would be 50k.( that is overly simplified but you get the idea).

 

Most banks have actually a market value that is fraction of their book value ( 80% or so), it's lower these days.

The main reason is that banks have assets whose value is very hard to guess ( that's the reason of the current financial crisis among other things).

Even without going into exotic bonds, you could have 10 Billion $ of Sony stock, but if you decide to sell it all tomorrow, you won't get 10 Billion for it..........( another closer to reality would be bonds, a lot of bonds are actually very hard to trade, so the bank could have a lot of money in bonds but their value is only somewhat exact if the bank keeps them till their term, if it was to decide to sell them before that time, the price really is hard to guess for something that does not trade often...)

 Basically  the big issue is that for a lot of assets, the bank say that is what they are worth and there is noone to be able to validate that so you have to take the bank's worth for it, which is one of the big reason all the banks are doing so bad on the market right now....

That is what explain the huge losses you see coming from banks the last year or so. What happens basically is the bank suddenly tells you that those 10 Billion worth of bonds it had on its book are now really only worth 5 Billion so it takes a 5 Billion loss without having really done much except suddenly change the value of one asset.....