Could you point to anywhere in the text where it says if you pay more than the FV of the whole company you record it as a loss? I’d be interested in knowing that.
cpk123 Wrote: ------------------------------------------------------- > This is a highly unlikely situation. If someone > comes to the table, tells you their value is 200K > are you going to go back and let him know that > “hey… you are so undervalued, I valued you at 1M > $” ? cpk, there is only one BV, but many FV’s. Companies are rarely acquired at fair value…there is always some additional amount one attributes to growth, to good prospects, to synergy, etc. Fair value gives you the market price of the assets (a guess at best), but it does not tell you what the company is worth. A stock price is, in many cases, way and above fair value.
but those values are likely to be higher at the company’s own level (since they have more inside information regarding the company itself, prospects etc.), not from an outsider’s perspective.
my answer to you is sort of. read the part about goodwill impairment. Such a purchase would easily qualify as impaired the second it hit your books, so as I mentioned already, you would take a goodwill impairment hit. My point is, why bother putting it on your books at that inflated value, and then doing the goodwill impairment stuff? you should realistically accept the loss immediately, if you know you’re overpaying. Consider a stock with a book value of $25, available on the market for $30, and then I, for some stupid reason, purchase it off some guy for $50. I would put it on my books at $30, and accept a loss of some kind of $20.
magicskyfairy, what you describe above happens quite often in the stock market. A stock priced at $30 is aquired by a company for $50 a share…actually happened to me once (close to that number)!
I dunno what to tell you bud. I agree with you that the way an overpayment would go down in practice would be different than in a textbook. Let’s stick with this convenience store example; net assets on the books are only $200,000 and realistically, an honest look at the company makes it worth $250,000 overall. However, some acquisition hungry conglomerate decides they want to buy it no matter what. They send their dood in, and talk about synergy, and scale, and all that BS, and say the fair value to them is $300,000. Fine; all they’re doing is justifying a fair value for the company as a whole of $300,000, in which case they’d call it $100,000 of goodwill, and nobody else would care enough to force them to bring that figure down another $50,000. Nobody’s going to overpay for a company like that, and admit to the world that they’re overpaying, they’re gonna be all “nah, this thing is totally worth every cent, regardless of the book value they had”
Can somebody who received the notes before magicskyfairy went to Cuba today please flip me the word documents? Email addy is matt.bolzicco@gmail.com Thank you!