Upcoming Live Fastlane Calls (FREE!)
Inventors Virtual Meetup (FREE - All welcome!): Sunday, April, 21st 2024: 11 AM ESTJoin over 80,000 entrepreneurs who have rejected the paradigm of mediocrity and said "NO!" to underpaid jobs, ascetic frugality, and suffocating savings rituals— learn how to build a Fastlane business that pays both freedom and lifestyle affluence.
Free registration at the forum removes this block.I wanted to know that is general reserve of previous year's profit included if we sell our private company to someone for P/E ratio of 3.
Generally asking , Do we also have to sell reserve that we made from previous year's profits while selling our company ?
Generally asking , Do we also have to sell reserve that we made from previous year's profits while selling our company ?Liquidity of the investment for investors and availability of freely moving capital.
Generally asking , Do we also have to sell reserve that we made from previous year's profits while selling our company ?
So it means we can take away reserves and previous year profits in most cases ?It depends. This should be discussed between the buyer and seller and have an impact on the sales price. In my experience, small businesses will often want to
It depends. This should be discussed between the buyer and seller and have an impact on the sales price. In my experience, small businesses will often want to withdraw their equity before the sale, especially if it is a pass-through entity and they've already paid tax on it.
The sales agreement will usually stipulate X dollars of working capital remain in the business, so that during the transition of the sale there aren't cash flow problems.
withdraw their equity before the sale, especially if it is a pass-through entity and they've already paid tax on it.
The sales agreement will usually stipulate X dollars of working capital remain in the business, so that during the transition of the sale there aren't cash flow problems.
I guess most people who sell their company for P/E of 2-4 does'nt have reserve and if they have it it's to the minimum.Not if you distribute it first.
I wanted to know that is general reserve of previous year's profit included if we sell our private company to someone for P/E ratio of 3.A quick look at P/E ratios for Apple Inc (AAPL) and Amazon.com Inc (AMZN) illustrates the dangers in using only the P/E ratio to evaluate a company. In late June, 2014, Apple was traded at $92.18 with a P/E ratio (TTM) of 15.34. On the same day, Amazon’s stock price was $334.38 with a P/E ratio of 511.06. One of the reasons Amazon’s P/E is so high is that it has been sacrificing profits in order to expand aggressively on a wide-scale, thus, keeping earnings suppressed and the P/E ratio very high. If you were to compare these two stocks based on P/E alone, it would be impossible to make a reasonable evaluation. A low P/E ratio doesn’t automatically mean a stock is undervalued, just like a high P/E ratio doesn’t necessarily mean it is overvalued.
Read more: How can the price-to-earnings (P/E) ratio mislead investors? | Investopedia How can the price-to-earnings (P/E) ratio mislead investors?
Follow us: Investopedia on Facebook
Nik - it really depends on your business model and the cash needs of the business. If you are selling a smaller online business, it is common for sellers to remove all cash and earnings from the business. When you get to larger businesses (mostly million+) or businesses that operate brick and mortar, or have a degree of physical operations, you have to leave behind an agreed upon amount of "Net Working Capital" which is essentially the amount of cash a business needs on hand to be able to fund it's operations. Happy to go into further detail if necessary.So it means we can take away reserves and previous year profits in most cases ?
Thank you so much.
Join Fastlane Insiders.