you guys clearly know way more than average about finance and have a very good sense of it, so I don't want to criticize but you aren't using the language precisely enough and your quibbles keep requiring more quibbles. All in good fun, of course:)
the definition of an asset is something that you own which is expected to provide future benefit, i.e. future expectations are built into asset so you don't need to quibble about it. If you want to quibble, it's book values that are wrong unless the asset is marked to market as in your cash example.
and there isn't a separate discount for risk, but rather the discount rate must reflect the risk or you aren't discounting, you're fudging
it is the law that companies pay dividends, and there is only an exception to retain them for growth, so expecting future dividends is reasonable.
On that latter point, the definition of valuation that talks about dividiends is simply pointing out that the only way owners can get cash value from their equity is by selling the equity or by getting a dividend from the company (and I guess dissolution?), so valuation must be based on future dividends and future value of equity.
To continue, so I can get to my editorial ; ) Dividends are paid after tax earnings, but dividends are then immediately subject to a second round of personal income tax so investors hate getting them. Investors would rather choose when to sell their equity and they'd rather pay the capital gains tax which is lower. But the IRS wants its taxes so thats why dividends payouts are required. It's highly suspect for a company at one moment to not pay dividends because they're "needed for growth," and in the next moment to buy back equity because it's "undervalued". In actuality, stock buybacks are sleazing the tax law to convert income into capital gain so the dividend taxes don't need to get paid, and so that different investors can make different choices about the timing of the income. But it is even more sleazy for the government to tax income twice, so I hate to complain about this little bit of subterfuge. The real answer is to eliminate corporate income tax altogether and simply require taxes be paid on unrealized capital gain, but I guess that will never happen. If the tax rate were flat we could do the opposite: eliminate personal income tax and just tax businesses which would be massively simpler and would end up with the same tax revenue and less drain on the economy.
By the way, if you are a reader who has not really understood what we are talking about here: It is really unfortunate because most of this is fairly simple common sense arithmetic with a few basic concepts but accountants have invented all of this terminology which is more confusing than helpful till you digest it all. suggestion for slashdot certain kinds of the accumulated knowledge I see on Slashdot should be put into SlashFAQs for Finance, Accounting, etc. It's so sad to see it drift away into the past....
quibbles and bits, quibbles and bits (Score:2)
On that latter point, the definition of valuation that talks about dividiends is simply pointing out that the only way owners can get cash value from their equity is by selling the equity or by getting a dividend from the company (and I guess dissolution?), so valuation must be based on future dividends and future value of equity.
To continue, so I can get to my editorial ; ) Dividends are paid after tax earnings, but dividends are then immediately subject to a second round of personal income tax so investors hate getting them. Investors would rather choose when to sell their equity and they'd rather pay the capital gains tax which is lower. But the IRS wants its taxes so thats why dividends payouts are required. It's highly suspect for a company at one moment to not pay dividends because they're "needed for growth," and in the next moment to buy back equity because it's "undervalued". In actuality, stock buybacks are sleazing the tax law to convert income into capital gain so the dividend taxes don't need to get paid, and so that different investors can make different choices about the timing of the income. But it is even more sleazy for the government to tax income twice, so I hate to complain about this little bit of subterfuge. The real answer is to eliminate corporate income tax altogether and simply require taxes be paid on unrealized capital gain, but I guess that will never happen. If the tax rate were flat we could do the opposite: eliminate personal income tax and just tax businesses which would be massively simpler and would end up with the same tax revenue and less drain on the economy.
By the way, if you are a reader who has not really understood what we are talking about here: It is really unfortunate because most of this is fairly simple common sense arithmetic with a few basic concepts but accountants have invented all of this terminology which is more confusing than helpful till you digest it all. suggestion for slashdot certain kinds of the accumulated knowledge I see on Slashdot should be put into SlashFAQs for Finance, Accounting, etc. It's so sad to see it drift away into the past....