<story><title>Why Positive Cashflow Matters</title><url>https://avc.com/2019/09/why-positive-cashflow-matters/</url></story><parent_chain><item><author>H8crilA</author><text>One sign of a bubble: traditional valuation principles are abandoned because &amp;quot;this time it&amp;#x27;s different&amp;quot;. See Nifty Fifty, 2000 dotcom, 1920&amp;#x27;s crash, 2015 Chinese A shares, ... . It usually requires a new generation of people to enter the market because most people learn only on their own mistakes, not on other people mistakes.&lt;p&gt;This article talks about what negative cash flow means for the company. But what does it mean for the investor? A company that cannot go cash flow positive is worth zero - the value of the company is max(all future cash flows discounted by the interest rate curve, 0). The max(, 0) comes from the concept of the limited liability company.</text></item></parent_chain><comment><author>rgoldste</author><text>I catch your drift, but this isn’t technically true. A company with negative discounted cash flows might have a positive expected value because it can undertake a risky project that has a negative expected value. Usually this project will bankrupt the company, but occasionally it will provide a windfall. During bankruptcy, the company might not pay off all of its debts, but it can’t be worth less than 0 due to limited liability. During the unlikely event of success, the company is worth something.&lt;p&gt;If you want to know more, look up “moral hazard” and “real options”.</text></comment>
<story><title>Why Positive Cashflow Matters</title><url>https://avc.com/2019/09/why-positive-cashflow-matters/</url></story><parent_chain><item><author>H8crilA</author><text>One sign of a bubble: traditional valuation principles are abandoned because &amp;quot;this time it&amp;#x27;s different&amp;quot;. See Nifty Fifty, 2000 dotcom, 1920&amp;#x27;s crash, 2015 Chinese A shares, ... . It usually requires a new generation of people to enter the market because most people learn only on their own mistakes, not on other people mistakes.&lt;p&gt;This article talks about what negative cash flow means for the company. But what does it mean for the investor? A company that cannot go cash flow positive is worth zero - the value of the company is max(all future cash flows discounted by the interest rate curve, 0). The max(, 0) comes from the concept of the limited liability company.</text></item></parent_chain><comment><author>gizmo686</author><text>Doesn&amp;#x27;t said company still have assets? At some point, the company can just dissolve and liquidate its assets. Assuming the assets are worth more then the companies debt, this leaves something to distribute to shareholders.</text></comment>