Become Buffett: research, compliment, strategy, suggestion
Posted: Sun Oct 29, 2017 7:50 pm
This post is a follow-up of my earlier post http://www.capitalism2.com/forum/viewto ... =10&t=4672 on the calculation of earnings per share: is that net profit or operating profit? And how to take advantage of earnings per share to get a better net worth and stock price of my own company.
This post is a mixture of my research, and a strategy based on my research, a compliment to the developers of this game, and some suggestion to them:
Research: What I want to understand is what the earning per share is based on. I'm interested in this since I really care about my company's stock price and the earning per share certainly makes a big impact.
This is a typical stock focused company, doesn't do any retail or manufacturing. So it doesn't have any operating profit. But according to its income statement, the net profit is good, since the owned stocks are rising. Now the earnings per share, interestingly, it is not 0, that should be the number if it's really only based on operating profit. Is this based on net profit per share? If so, then it should be $761,771,230/76,000,000=$10.02, which is much larger than $0.82. Then, what is it? After some study, I finally got it, it = received dividends/shares=62,683,433/76,000,000=0.82. So earnings per share is not based on operating profit purely nor net profit, it is (annual operating profit+received dividends)/shares.
The next question is whether this dividends received will impact the stock price. The answer is yes. In my old post, I made a wrong conclusion that dividends you received will not impact the IPO market cap. This is not correct, please see the following careful research. Lionheart is my own company, this company is only a shell and is currently a private company. LT foods is my subsidiary, also private. And I just received a decent dividends from it. Now I let my Lionheart to go public. Even though, it shows earnings per share is 0, the P/B ratio IPO can give me is 2.22. As we know, if I'm not making any profit, the P/B ratio should be 1. This fact tells us, the dividends I received are in fact consider as a boosting factor in IPO and stock price. But why the boosting is so small for an typical stock focused company like the above example: the p/b ratio is below 1. I conjecture that the boosting factor is based on the ratio of profit to the net worth. That is to say, if your company is already very big, your profit is relatively minor compared to a small company making the same amount of profit. This explains why the stock focused company usually get a very low p/b ratio (less than 1 usually): Its net worth is growing very fast by the raise of stocks it purchases, but the stock raising is not accounted in earnings per share. The only profit is coming from dividends received, but it is very minimal.
I also did some research to verify that conjecture. (This part is not very important, ignore if you think this post is too long )
Going back to our earlier example, this time I first let my subsidiary LT foods go to public, since it makes a good profit last year, it of course have a very good market cap. Now it goes to public, my own company's net worth suddenly grows. But at the next day, when my own company goes to public itself, the p/b ratio is only 1.05 now, and the market cap is the same as before. Why? Because the boosting is minimum since the base (my net worth) is suddenly doubled.
This post is a mixture of my research, and a strategy based on my research, a compliment to the developers of this game, and some suggestion to them:
Research: What I want to understand is what the earning per share is based on. I'm interested in this since I really care about my company's stock price and the earning per share certainly makes a big impact.
This is a typical stock focused company, doesn't do any retail or manufacturing. So it doesn't have any operating profit. But according to its income statement, the net profit is good, since the owned stocks are rising. Now the earnings per share, interestingly, it is not 0, that should be the number if it's really only based on operating profit. Is this based on net profit per share? If so, then it should be $761,771,230/76,000,000=$10.02, which is much larger than $0.82. Then, what is it? After some study, I finally got it, it = received dividends/shares=62,683,433/76,000,000=0.82. So earnings per share is not based on operating profit purely nor net profit, it is (annual operating profit+received dividends)/shares.
The next question is whether this dividends received will impact the stock price. The answer is yes. In my old post, I made a wrong conclusion that dividends you received will not impact the IPO market cap. This is not correct, please see the following careful research. Lionheart is my own company, this company is only a shell and is currently a private company. LT foods is my subsidiary, also private. And I just received a decent dividends from it. Now I let my Lionheart to go public. Even though, it shows earnings per share is 0, the P/B ratio IPO can give me is 2.22. As we know, if I'm not making any profit, the P/B ratio should be 1. This fact tells us, the dividends I received are in fact consider as a boosting factor in IPO and stock price. But why the boosting is so small for an typical stock focused company like the above example: the p/b ratio is below 1. I conjecture that the boosting factor is based on the ratio of profit to the net worth. That is to say, if your company is already very big, your profit is relatively minor compared to a small company making the same amount of profit. This explains why the stock focused company usually get a very low p/b ratio (less than 1 usually): Its net worth is growing very fast by the raise of stocks it purchases, but the stock raising is not accounted in earnings per share. The only profit is coming from dividends received, but it is very minimal.
I also did some research to verify that conjecture. (This part is not very important, ignore if you think this post is too long )
Going back to our earlier example, this time I first let my subsidiary LT foods go to public, since it makes a good profit last year, it of course have a very good market cap. Now it goes to public, my own company's net worth suddenly grows. But at the next day, when my own company goes to public itself, the p/b ratio is only 1.05 now, and the market cap is the same as before. Why? Because the boosting is minimum since the base (my net worth) is suddenly doubled.