Eli5: How can large companies be worth (valued at) so much when they do not make any net profit?
In: 7
The key word you are missing after profit is “yet.”
Some industries have incredible startup costs, like a gas station for instance. You have to dig in the ground and install a new gas main, as well as rent a building and pay a store clerk. In the first year, this may not be a profitable business. But in the 6th year?? It very well may be. Apply this on a larger scale, and you may see a company that reports losses of $1/share, now going down to .50/share, suddenly the company is breaking even and the next few years has turned profitable. All that goes into what makes the “valuation” of a company, if investors believe one day it will be worth more than it is now then it has value.
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