What the CEO Wants You to Know, Expanded and Updated by Ram Charan

Author:Ram Charan
Language: eng
Format: epub
Publisher: The Crown Publishing Group
Published: 2017-09-26T04:00:00+00:00

This Applies to Private Companies, Too

Even if your company is privately held, the same principles apply. Public scrutiny creates an extra incentive for good discipline, but private companies can create their own discipline. Doing the right things day in and day out builds value. Remember, private companies often get sold or go public: their value is determined by the same principles that underlie the P/E multiple.

That raises this question: where exactly does the P/E come from? For public companies, market forces, based on the assessments of individual investors and securities analysts, determine a company’s P/E. Securities analysts and investors decide what they think is the appropriate P/E for the companies they track. They often look at earnings estimates.2 If their assessment shows the company deserves a higher P/E than the market reflects, their firms tend to buy the stock. The opposite is also true: they tend to sell if they believe the P/E multiple is too high.

It’s not unusual for two securities analysts to have contradictory recommendations, because their conclusions involve some degree of judgment. But the key word in that sentence is “some.” Securities analysts do use fixed guidelines and typically judge the company against other firms in its industry, and they compare the industry to the total market.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.