andEs Corner: what is a company worth

As we head into this new world I think one thing is going to remain the same but I still think is not understood: what is a company or corporation actually worth?

You have the obvious things based around capital like cash, investments, real estate and, in the case of American car companies, private jets. You have things like patents. And you have your product lines.

But the biggest thing a company has are it’s people. And the knowledge / energy that they posses and use for the good of the company.

This to me is obvious but it amazes is that it is still not fully understood. If you fire people you are essentially removing a chunk of your value. But for some reason the stock exchange reacts in a different light and usually increases the value of the company on the stock market as they are only focusing on the resulting reduction in OPEX.

There are I believe various times when it makes sense to fire staff:

1. they are shit and so deserve to be fired – but this is usually one off and not mass layoffs. It is highly unusual that you have a whole department of losers.

2. the product / area they are working on is no longer needed or being phased out.

3. the company change some process which streamlines the way work is being done thus removing the need for some of the people.

RARELY do I see any of the above being given as reasons for mass layoffs.

It is usually done in an irresponsible manner endangering the existing customers / products and remaining staff. Surely the value of a company should go down and not up if people are fired…

Infact, often AFTER a mass layoff you see the effect that the reasons 2 and 3 stated above are done retroactively. i.e. the processes have to be changed or products have to be dropped due to missing key personel.

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2 thoughts on “andEs Corner: what is a company worth

  1. Totally agree! If a company can lay off thousands of people at the same time, what does that say about their hiring strategy? Does this mean that over the years they’ve happily recruited people they don’t need? Of you can lay off half your workforce, but promise to maintain the same levels of service or product development, you’ve been wasting money all the previous years. Funny enough, these companies (banks, insurance, car manufacturing) are the ones that now receive these huge bail-out packages.

    How many times can they keep spending my money.
    1. I pay too much as they apparently have half a workforce sitting around doing nothing resulting in inefficiency and overhead.
    2. They receive my tax money to fix the problem.
    3. The bank already had my money in their accounts…

  2. yeah, maybe the truth is somewhere in the middle. Considering current state of the affairs (financial crisis, demand dropping ….) the companies are suddenly in a situation where a lot of people has nothing to do. It can be a lot of people. Responsible company will not fire them immediately but try to do something and searches for other business. But if there is no light at the end of the tunnel then they have to fire as many people as is needed to keep them running in new demand situation. Before laid off their stocks were low due to low/negative profit and no change in sight. Massive laid off is a sign to investors hat the company is actually doing something and not only letting it go to bankruptcy.

    Other problem is how to find out who you can fire without endangering your core business. If you are building cars the it is more or less easy. You have a lot of people to doing it + some key persons in construction … I agree thet in SW/sales/….. jobs it is a problem to make it run.

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