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hkmurakami 520 days ago | link | parent

Why use Market Cap, which is affected by arbitrary earning multiples that are swayed by forces outside of the company's control? An analysis based on revenue or profits seems much more reliable.


eladgil 520 days ago | link

I definitely agree that markets are in-efficient in how they price companies at a given moment. I also think it would be interesting to do the same analysis with e.g. cash flow the core metric.

However, I do think market cap is a reasonable proxy as factors like growth (which can strongly impact market cap) have interesting implications for where an entrepreneur should or should not build a business.

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hkmurakami 520 days ago | link

For growth, looking at the historical revenues/profits/cashflows would be a better gauge than market cap. Public companies disclose annual numbers for the last 4 years in their 10-K statements, and you can look farther back by looking at historical 10-K statements.

Market cap is a proxy that has too many outside factors and should be eschewed in favor of more concrete and reliable numbers since they are readily available.

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eladgil 520 days ago | link

What I meant is that growth is often factored into market caps (PGE).

I agree with you that a more complex analysis could be done and it would be more rigorous and it may reveal additional insights.

However, I am guessing the primary takeaways I listed would not change much with the additional rigor.

Your comments also raise an interesting question - i.e. what are the right measures by an entrepreneur for the value their company is creating? There are obvious points of human impact (user base, engagement etc.), but if you are an entrepreneur, what financial metric should you care about? For example, Jeff Bezos often point to free cash flow as the big metric Amazon tracks...

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