Finance ‘storming’ here…
Is living on the top of a 10 story building exactly as safe as the 2nd floor? Can you say that 100 oranges are equal to 200 christmas cards. Is paramount pictures worth as much as a mining company? Is there true fungibility. Is one slightly riskier than the other and is there a missing ‘gap’ there when comparing companies.
Take a paper rolling company like domtar and software company like electronic arts. Similar valuations right?
They may carry similar capitalizations, but how misleading such a number would be without factoring what i’m calling asset beta, a ‘scaffolding’ risk of assets – or simply book beta.
When we think about beta in finance, it is tethered to the underlying valuation of the company (their stock price). BUT there seems to be a hidden difference between different types of book assets people are adding up (for eg. intellectual property or perishables like food versus non-perishables) Can you easily compare the cost of stock for a fruit stand with a stationery store and say at face value that one is equal to the other, for that matter a software company?
I’m sure it is already baked in subjectively to people’s subjective judgements of worth. I am curious to see if it is systematically included in any valuation models.
thought to mention.
Beta, being the number measuring price volatility of a stock against a group. For instance, during a trial the company’s stock will have high beta, as wins/losses change according to the court case.
Book Value, being the price that your real assets can fetch in the market. For an apt, it would be what the bed, chairs, tv and other things are worth in a sale.