A Simple Way to Assign Value to a Company

If a company is not profitable today and paying back investors today, you should probably wait until your portfolio is a little large to take a risk on that company.  If a company is profitable with a nice revenue stream and you own either all of the company or just a portion of that company, than that ownership is an asset.

How do you include the value of this asset in your net worth calculation?

For starters, an article at moneyterms.co.uk talks about the valuation of such a company.  I have a nice easy trick.  If the company generates an income stream of $40,000 per year, this company is approximately worth $800,000.

Think about this.  If you wanted to generate $40,000 per year from a retirement account, how much money would you need in the bank account?  That's right, assuming a 5% payout, you would need $800,000.  A company generating $40,000 per year should be purchased for roughly $800,000.

One of the keys is to use the same conversion factor over time.  I used the standard 5% ten years ago and still use it today as several municipal bonds, which are relatively safe investments are paying this out even in today's economy.

In this article, there is an oversimplification because a company may also own property.  However, these can simply be added to the value of the company.

What do you think?  Should a company's valuation be simple the sum total of its revenue stream and current assets?

This post was reposted from http://finlit.biz/business/a-simple-way-to-assign-value-to-a-company/, originally written on February 10th, 2013.

What is Izu's PIN-W Ratio?

Do you know your PIN-W Number?  This is an extremely important number to calculate if you ever want financial independence.

A great article posted at www.forbes.com, debunks the myth that passive income is achieved without a great amount of work.  In fact, one should be shooting for creating a huge passive income stream to enable their earning power to grow over time rather than dwindle.  Of course the underlying philosophy is that money flows to those helping the most people.  So in building this passive income stream, you are undoubtedly growing yourself personally and attempting to provide greater value to your community.

So what is Izu's PIN-W number?  Let's paint a picture to give you a good idea.  Suppose you make $150,000 per year, own a house worth $800,000, carry a $300,000 mortgage at 3.8% and have a booming retirement account that is at $400,000 making a decent 5% per year.  With this oversimplified picture, your net worth is $900,000 and you make a whopping $8,600 per year.  Your passive income to net worth ratio is .95%.

This basically means that you are setting yourself up to work until age 65.  If you love what you do, this is great.  However, my question is what happens if you unexpectedly lose your job?  What happens if you unexpectedly get sick?

This post was reposted from http://finlit.biz/retirement-2/do-you-know-your-pin-w-number/, originally written on February 3rd, 2013.

Do You Know Your Net Worth?

If I were to sit down with you and ask you how much was in your retirement account, how long would it take to dig up this number?

If I were to ask you what were the estimated values of your assets, how long would it take to get these numbers?  Do you even know what the difference between an asset and liability is?

If I were to ask you the amounts of your various loans were, do you know these amounts?  Do you know your minimum payments, actual payments and various interest rates?  Do you know how much you owe on your mortgage?

Suppose you have calculated your net worth, do you know what it was a year ago.  Do you know if you are improving from year to year?  Are you letting time slip away like most Americans?  When is enough, enough.  Do something about it.  Now!

The fact that you are reading this means you are ahead of 90% of Americans.  If you could only take some action, you will start beating half of the remaining 10%.  Check out Paul and Donald's race to a million dollars at www.blogtoamillion.com.

This post was reposted from http://finlit.biz/business/do-you-know-your-net-worth/, originally written on January 29th, 2013.