<p>A company's value, in financial terms is given by its equity, or its difference between its assets and liabilities. The well known expression $E=A-L$ reflects this. When you buy a share, you buy a part of the equity. The point is that since the world we live in is dynamic, decisions today affect outcomes tomorrow. As a result, when you buy part of this equity, you are buying part of the claims on the firms' <em>expected future profits</em>. The market rewards those goods that consumers demand more with a higher price and one can definitely make the argument that a firm's future profits are conditional on it producing goods/services that are valued by the public. Whether or not the goods themselves improve the lives of consumers is a separate question altogether. Do we always buy goods that improve our lives? What does that even mean? </p>

CC BY-SA 3.0
2015-10-08T19:25:50.497Z
Im exploring the markets from a philosophical standpoint. E = A - L is getting into a lower level of detail, im trying to get a higher level understanding - a philosophical understanding. Let's take E = A - L.  An asset is essentially property that has value and can meet debts. Liabilities are debts or obligations. Equity therefore is value. What is value? It is expected future profits according to you. A company will make profits if it's goods are in demand and it can deliver those goods in a profitable manner.
DVCITIS
CC BY-SA 3.0
2015-10-08T19:25:56.310Z
Unless you are pschologically ill, why would you buy a product that does not improve your life? Im using the paragraph in my initial question a the basis of an argument so just testing its integrity
DVCITIS
CC BY-SA 3.0
2015-10-08T19:38:16.327Z
Rather idealistic but: in a perfect world, a company's value should reflect its ability to efficiently and effectively bring products and services to market that improve the lives of consumers, if demand is from psychologically healthy consumers. Do you think this paragraph is solid or can it be argued?
DVCITIS
CC BY-SA 3.0
2015-10-08T19:58:25.073Z
@Pete— Value to whom? Equity holders? If so, then it will be valued for whatever reason the people willing to pay the most for the equity value it. There is no value it "should" have, just whatever value individuals assign to it.
dismalscience
CC BY-SA 3.0
2015-10-08T20:07:43.960Z
Thanks for the questions! Im looking to see if this reasoning can be but to a halt: Let's go with equity holders. I'd say they would assign value for two reasons:
DVCITIS
CC BY-SA 3.0
2015-10-08T20:07:52.477Z
1. Investors have profit expectations and therefore hope of a capital gain or dividend. In this case, demand and therefore profit is because the company can deliver good products effecively and improve life.
DVCITIS
CC BY-SA 3.0
2015-10-08T20:08:00.657Z
2. They assign value for subjective or emotional reasons; maybe they think a company will contribute to curing a disease or maybe it's their football team. In this case, the equity is the product. The investor is the consumer. They feel happy they are helping cancer research or their football team. Their lives are improved?
DVCITIS
CC BY-SA 3.0
2015-10-08T19:04:45.197Z
2015-10-08T19:04:45.197Z
ChinG
<p>At the highest level, would you say that regardless of market/economic environment (free/regulated), a company's value <strong>should</strong> reflect its ability to efficiently and effectively bring products and services to market that improve the lives of consumers?</p>

<p>Perhaps this is more of a philosophy/ethics question; cant think of any valid argument against this.</p>

<p>For some context, my train of thought is:
If the values of all companies do reflect their ability to improve the lives of consumers, then an equity index should therefore be an indication of how good the private sector is at improving life. The value of an equity index allows us to consider the health of a particular market. The financial markets are complex systems in which both physical and mental health are two large constituents. By physical health, I mean the bodies of employees, the buildings in which they work and the technology they use for example. By mental health, I refer to the emotional and psychological well-being of individuals, teams, whole companies and markets.</p>

<p>Thoughts please.</p>

CC BY-SA 3.0
2015-10-08T19:36:48.437Z
It seems to me that this is a statement disguised as a question. Also there are quite a bit of murky details. As a lowly economist I am not sure I know what you mean by "highest level", "should" and I don't know how you would measure improvement of life.
Giskard
CC BY-SA 3.0
2015-10-08T19:40:24.583Z
highest level = as simple as possible, dont want to get into the detail of how equity is calculated in a companies financials for example. Should = it probably doesnt work that way because companies act in the interest of shareholders not consumers - should this be one and the same because profits come from creating demand and delivering good products to consumers effectively?
DVCITIS
CC BY-SA 3.0
2015-10-08T19:46:16.900Z
not sure how to measure the improvement of life either - that is what im trying to address. Perhaps the financial markets would help gain some insight if they operated as stated in my opening paragraph. This is why im testing its integrity. All arguments or reading suggestions very welcome..
DVCITIS
CC BY-SA 3.0
2015-10-08T21:29:14.473Z
Are you familiar with the welfare theorems of economics? If not I highly recommend those and the entire Intermediate Microeconomics of Hal Varian while you are at it. Once you know what you exactly define as welfare, efficiency etc. you can move on to the finance part.
Giskard
<macroeconomics>
What should the value of a private sector company tell us?
DVCITIS
# What should the value of a private sector company tell us?

(Asked by: username_0 on 2015-10-08)

At the highest level, would you say that regardless of market/economic environment (free/regulated), a company's value **should** reflect its ability to efficiently and effectively bring products and services to market that improve the lives of consumers?

Perhaps this is more of a philosophy/ethics question; cant think of any valid argument against this.

For some context, my train of thought is:
If the values of all companies do reflect their ability to improve the lives of consumers, then an equity index should therefore be an indication of how good the private sector is at improving life. The value of an equity index allows us to consider the health of a particular market. The financial markets are complex systems in which both physical and mental health are two large constituents. By physical health, I mean the bodies of employees, the buildings in which they work and the technology they use for example. By mental health, I refer to the emotional and psychological well-being of individuals, teams, whole companies and markets.

Thoughts please.

**Tags:** macroeconomics

> **Comments:**
> **username_1**: It seems to me that this is a statement disguised as a question. Also there are quite a bit of murky details. As a lowly economist I am not sure I know what you mean by "highest level", "should" and I don't know how you would measure improvement of life.  
> **username_0**: highest level = as simple as possible, dont want to get into the detail of how equity is calculated in a companies financials for example. Should = it probably doesnt work that way because companies act in the interest of shareholders not consumers - should this be one and the same because profits come from creating demand and delivering good products to consumers effectively?  
> **username_0**: not sure how to measure the improvement of life either - that is what im trying to address. Perhaps the financial markets would help gain some insight if they operated as stated in my opening paragraph. This is why im testing its integrity. All arguments or reading suggestions very welcome..  
> **username_1**: Are you familiar with the welfare theorems of economics? If not I highly recommend those and the entire Intermediate Microeconomics of Hal Varian while you are at it. Once you know what you exactly define as welfare, efficiency etc. you can move on to the finance part.  

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## 1 answers

### Answer by username_2 on 2015-10-08. Score: 0

A company's value, in financial terms is given by its equity, or its difference between its assets and liabilities. The well known expression $E=A-L$ reflects this. When you buy a share, you buy a part of the equity. The point is that since the world we live in is dynamic, decisions today affect outcomes tomorrow. As a result, when you buy part of this equity, you are buying part of the claims on the firms' *expected future profits*. The market rewards those goods that consumers demand more with a higher price and one can definitely make the argument that a firm's future profits are conditional on it producing goods/services that are valued by the public. Whether or not the goods themselves improve the lives of consumers is a separate question altogether. Do we always buy goods that improve our lives? What does that even mean?

> **Comments:**
> **username_0**: Im exploring the markets from a philosophical standpoint. E = A - L is getting into a lower level of detail, im trying to get a higher level understanding - a philosophical understanding. Let's take E = A - L.  An asset is essentially property that has value and can meet debts. Liabilities are debts or obligations. Equity therefore is value. What is value? It is expected future profits according to you. A company will make profits if it's goods are in demand and it can deliver those goods in a profitable manner.  
> **username_0**: Unless you are pschologically ill, why would you buy a product that does not improve your life? Im using the paragraph in my initial question a the basis of an argument so just testing its integrity  
> **username_0**: Rather idealistic but: in a perfect world, a company's value should reflect its ability to efficiently and effectively bring products and services to market that improve the lives of consumers, if demand is from psychologically healthy consumers. Do you think this paragraph is solid or can it be argued?  
> **username_3**: @Pete— Value to whom? Equity holders? If so, then it will be valued for whatever reason the people willing to pay the most for the equity value it. There is no value it "should" have, just whatever value individuals assign to it.  
> **username_0**: Thanks for the questions! Im looking to see if this reasoning can be but to a halt: Let's go with equity holders. I'd say they would assign value for two reasons:  
> **username_0**: 1. Investors have profit expectations and therefore hope of a capital gain or dividend. In this case, demand and therefore profit is because the company can deliver good products effecively and improve life.  
> **username_0**: 2. They assign value for subjective or emotional reasons; maybe they think a company will contribute to curing a disease or maybe it's their football team. In this case, the equity is the product. The investor is the consumer. They feel happy they are helping cancer research or their football team. Their lives are improved?  

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