[OC] Apple’s cash flow statement visualizedSubmitted by giteam t3_zyxclj in dataisbeautiful
Sadoksad t1_j2d3cp2 wrote
Reply to comment by Yeti-420-69 in [OC] Apple’s cash flow statement visualized by giteam
shiii mind explaining where I went wrong in my understanding?
Yeti-420-69 t1_j2d4zyj wrote
You have a lemonade stand. Between your 100lbs of lemons, 18 kilos of sugar, some ice cube trays, a table, and the earning potential it has over the next few months, you figure you could sell the business for $1000. This is your 'market cap'.
You want some cash right now to buy a new sign to go over your table and some other things so you decide to 'take your business public' and let 3 of your friends buy in. You split the company into 4 equal 'shares' and value them at $250 each.
Over the summer you all take turns working the stand, you reinvest the profits and open a second stand. Everything is going great until fuckin' Steve decides he's done working, wants to divest of his part of the company and relax until school starts up again.
The company is bigger now, has more inventory, more growth potential, more revenue, cash on hand from recent sales, you all decide to value it at $4000. Now if someone had $1000 they could purchase his share for themselves, but nobody has taken any profits, so instead the company buys back his share with that cash on hand. So by spending $1000 the company is now worth $3000 and is split 3 ways as that share was destroyed. Your shares are still worth $1000 each but now you own a larger piece of the company. This will mean a larger cut of future profits in the form of dividends and greater growth potential in the price of the stock, as future valuations will divide the market cap by 3 instead of 4.
I'm stoned and that seemed like a good way to explain it lol I hope it makes sense.
Edit: and I'm not American but isn't a 401k just a type of retirement account? They're just going to hold index and mutual funds.. those don't 'lag' the market, they're just collections of different equities and bonds.
Sadoksad t1_j2denk6 wrote
I didn't need you to explain market cap but thanks for the effort, I'm sure it will helpful to someone. The reason I asked you was because I wanted to know your opinion or your angle on the buy back of apple, that is the same angle I took when I wrote the other downvoted comment.
>This will mean a larger cut of future profits in the form of dividends and greater growth potential in the price of the stock, as future valuations will divide the market cap by 3 instead of 4.
The reasoning I used was, Apple isn't a growing company. Its well mature. I don't think we'll be seeing larger future profits in the form of dividends or greater growth potential. I mean with their product range ever increasing in price, I can't imagine they'd be breaking their sales record any time soon. I personally don't see them growing atleast in the next 5 years unless they come up with better innovation and cheaper prices.
The scenario that you explained is perfect for share buy backs of growing companies that are undervalued. They eventually increase value for the investors long term. But if the shares are overvalued keeping in mind its future prospects, and then you buy them back, it hurts the share holders long term. Any fund manager worth his salt will recognize that and will underweight his position at the very atleast. 401k, which like you said are a bunch of mutual funds and ETFs aren't known to be ahead of the curve. Which is what I meant by lag.
At the end of the day all my comments were entirely based upon the fact that I don't see Apple growing. Which is my opinion and I can of course be wrong.
Edit- Fuck. Now you have me doubting. Am I still wrong?
Yeti-420-69 t1_j2dgqg7 wrote
I'm just talking generically, I didn't have Apple in mind, but yes I still think you're incorrect. Reduction of the float is permanent.
I hate Apple's business practices and agree they have peaked. It's been dead to me since the 4S
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