Nintendo's Stock: Values Keep Rising

[Mnementh]

JWeinCom said:

 

There are various methods for determining a company's value.  I've never ever seen anyone (except at this point two people trying to make the argument that Sony is significantly more valuable than Nintendo) base it on assets alone.  Because assets mean nothing on their own.  Assets only have meaning when coupled with liabilities, which combines to form a metric called solvency.

You're pointing out that Sony has more assets.  But that 17.66 trillion in revenue is far less impressive when you consider that Sony has 14.5 trillion yen in liabilities.  Nintendo has 218 billion yen in liabilities, which is basically nothing..  

Nintendo's liabilities are 14% of their assets which is crazy good.  Sony's liabilities are 82% of their assets.  That's firmly on the high side. Once you subtract what Sony owes, they have 3.5 trillion yen in assets.  This is just about double the assets Nintendo possesses, not 10x.  And 1.1 trillion yen of that is intangible things (like goodwill and IP) while Nintendo for some strange reason does not list any intangible assets.  

So, in terms of actual physical assets, Sony has 2.4 trillion yen in excess of their liabilities.  Nintendo has 1.45 trillion. 

You mentioned that the marketplace can be volatile, and indeed it can be.  That's where another metric called liquidity comes in.  Sony has 5.2 trillion yen that they'll have to pay within a year.  They have 4.6 trillion dollars in current assets.  That means their liquidity ratio (current ratio) is .83.  That's very bad.  That means they only have 83% of what they need to pay their bills for the next year.  So, if they have a bad year, they're going to be in trouble.  They'll have to accumulate more long term debt (bad) or sell assets (bad).  Nintendo's liquidity ratio is 6.19.  That means they can pay their short term debts 6 times  over.  That is crazy good.  And then we have long term debt. Sony has a bit over 9 trillion yen in long term debt.  That's a lot relative to the size of the company.  Nintendo has something like 40billion yen in long term debt.  That is practically nothing. 

The bottom line is that it's pretty easy to foresee a scenario where Sony can run into very serious financial problems in the next ten years.  For Nintendo to have any financial problems that would actually threaten the company within the next decade, something really really really crazy would ha ve to happen.  Like, maybe if North Korea nuked Kyoto or something.

The idea that Sony is just going to switch their products to more profitable ones is a fantasy.  We've seen their divisions slumping, and they haven't just switched to other products.  As Sony's divisions have been slumping (media players, TVs, computers, cellphones) we haven't seen them radically change course.  We've seen them either sell off divisions, or try and keep competing with generally poor results.  Because changing quickly, especially in an incredibly competitive market like electronics, is prohibitively expensive.  It's a last resort if anything, and it's not something that most people are going to consider in long term projections.  

And by the way, Sony really just doesn't have that much in the way of factories and plants and land anyway.  Their assets are mostly contained in investments.  Honestly, that's probably better than Nintendo who basically keeps their money in a jar under their bed, but if your argument is based on physical assets like that, it's a weak one.

Onto profit then.  You're right that having more profit in a year or two doesn't mean a company is more valuable.  But, in the past decade, the amount of money made by Nintendo completely dwarfs the amount made by Sony.  Nintendo's made somewhere in the vicinity of 9 billion dollars over that timeframe, and Sony is I'm fairly certain has lost money in that period.  









TL:DR-  Yes, Sony has more assets and typically generates more revenue.  But there is a reason that there are all of those other numbers on the balance sheet.  Because all of those (especially the liabilities part) also factor into a company's prospects.  The only way to come to the conclusion that Sony is significantly more valuable than Nintendo is to, as you did, literally ignore more than half of the balance sheet.

Sony's assets and revenues show that they are a big company, which is the only reason they're even in the same ballpark as Nintendo's value. But those are the only areas where they beat Nintendo.  In terms of financial health, solvency, liquidity, historical profitability, and so on, Nintendo crushes them.  Sony could potentially, if all their divisions had major hits, make more money than Nintendo could, by a huge factor.  But, if the few areas that are functioning well (camera sensors, financials, playstation) falter, then Sony can realistically face an existential crisis in the near future.  And if nothing major happens, Nintendo will be a more profitable company in the near future.

I don't base it on assets alone. But I argue against the mainstream opinion in this thread to base it on profit alone. And basically, even with the better profit it is ridiculous that Nintendo reaches Sony.