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Helo John
The following is an extract from a technical article on valuations. I do not understand the last paragraph, i am therefore asking you to please explain.
“Majority holders: have access to their share of earnings and, because they can opt for
a winding up, their share of net assets of the company.Minority holders: have access to the dividends the majority decide to
pay and a share of the net assets if the majority decides to wind the company up.Therefore, because minority holders have little power and no control, a 20% share of a
company should be less than 20% of its total value. Conversely, an 80% share should
be worth more than 80% of the full value of the company.”They have written it in a complicated way, but all it means is that if you have control of a company then you can decide what the company does – how much dividend is paid out, whether to close down the company etc. – whereas if you only own a few shares then you just have to accept what the majority want to do.
So because majority shareholders have the control, their shares are really worth more per share than those of the minority shareholders.
Your version is a lot simpler! Why didn’t they just say that….sigh
Thanks John
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