In business, do we maximize profit or our business market value?
Well, it turns out both are the same. What we mean by maximizing our profit is that we maximize the amount of profit the business will generate in the future discounted by the interest rate.
And guess what, that’s the value of our business.
The catch is we dont know how much profit the business will generate in the future. So the value of our business depends on the expectation of such profit.
The interesting part in this is that the value of our business is a function of the expectation of our profit.
When we can convince enough people that our business will make a lot of money, at that time, the value of our business have gone up. At that time, the profit has been made.
That is why plenty of CEOs use a lot of the companys money to increase the perceived potential profit the company will make.
That means one thing important. Expectation matters. If stockholders think that your business is bad, at that time, a loss has been made. When stockholders think that your business is good, at that time a profit has been made.
You can see the profit through the...
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