Eli5: How can large companies be worth (valued at) so much when they do not make any net profit?
In: 7
A company is worth whatever someone is willing to pay for it.
Different investors have different ways to determine what they think something is worth.
In a perfect world, that would be based on some rational calculation of discounted expected future cash flows (how much money they will eventually make, and when) combined with the physical assets the company owns (cash, real estate, equipment). People will disagree about the value of both of these inputs, so there is almost always price fluctuation as people adjust their inputs. In reality, because people and investors are human, markets don’t exactly follow the rational math and emotion comes into it. A great salesman as a CEO can increase value if someone buys the message and the vision.
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