What does a contract's worth mean?
The amount stated is the total amount of money the customer will be paying to the company. How much profit that will translate into is dependent on the type of contract.  Some types of contracts: Cost plus fixed fee: they are paid what it costs to complete the contract plus a fee on top of that. That fee represents their profits. The costs will include salary, benefits, overhead, equipment, supplies. Firm fixed price: They perform the service, and they get paid a fixed amount. If their costs are higher than they forecast, then they may lose money. If they can be more efficient than they forecast, then they make more money. Time and materials: They are paid for completing each sub-task based on the number of hours it takes to complete each sub task, plus materials. This is used to hire a company to maintain a fleet of trucks. If the trucks are used a lot they will need more standard maintenance, plus additional repairs based on the type of use. They pay X for labor and Y for materials for an oil change, but A for labor and B for materials for a complete engine rebuild.  There are many variations on these themes. Some put the risk on the customer, some on the company.  How and when the company is paid is based on the terms of the contract. Some pay X% a month, others pay based on meeting milestones. Some pay based on the number of tasks completed in each time period. Some contracts run for a specific period of time, others have an initial period plus option years. The article may or may not specify if the quoted amount is the minimum amount of the contract or the maximum amount. The impact on the stock price is much more complex. Much more needs to be known about the structure of the contract, and who will be providing the service to determine if there will be profits. Some companies will bid to lose money, if it will serve as a bridge to another contract or to fill a gap that will allow them to delay layoffs. "$400M is the gross ""check"" the company will receive as payment for the project. The contract will specify payment schedule. And it can range from a payment per milestone achieved to a pay in full on completion.  The profit will hopefully be positive, but it's not impossible for a bid to underestimate the full cost, resulting in no profit at all. In theory, if you knew the expected profit from the deal, you should be able to estimate the value it adds to the company's value." It means $400m expected revenue, likely spread out over multiple years as it gets implemented, and not entirely guaranteed to happen as they still need to fulfill the contract. The impact on the stock price is complex - it should be positive, but nowhere close to a $400m increase in market cap. If the company is expected to routinely win such contracts, it may have no significant effect on the stock price, as it's already priced in - say, if analysts expect the company to win 1.2b contracts in this fiscal year, and now they've done 1/3 of that, as expected.
isn't the answer in the question?  it says the company starts officially NEXT year, yet it is asking for the net present value...i.e what that project is worth today.  it could be that funds for that particular project may not be necessary for another year, but there may be other projects to evaluate against today. When people are crowing about their achievements, they often take liberties with those achievements. Vitalik's interpretation -- net worth, is probably what you would naturally come to mind. But when someone is bragging, that could mean anything -- $1M of total revenue. "It is called ""Opportunity Cost.""   Opportunity cost is the value you lose because of a decision you made.   This is the book definition from Investopedia. The difference in return between a chosen investment and one that is necessarily passed up. Say you invest in a stock and it returns a paltry 2% over the year. In placing your money in the stock, you gave up the opportunity of another investment - say, a risk-free government bond yielding 6%. In this situation, your opportunity costs are 4% (6% - 2%)." All the existing answers are right and the general theme is: contracting is a different kind of relationship. It's a business-to-business relationship rather than a business-to-employee relationship. This has implications such as: Of course, some contractors are effectively just over-paid employees, and some of the above points don't apply to them, but that's the idea behind bona fide contracting. Sure, its worth something.  For example, not being able to speak freely would appear to devalue the wedding package this hotel offers.  Another way being able to speak freely is worth something is when you get sued for libel.  You can speak your mind, then pay the price to the lawyers and the court if what you said construed libel. "Valuation by definition is what an item is worth, not what you paid for it. Net worth should be market value for fixed assets or ""capital"" goods. I would consider this cars, real property, furniture, jewelry, appliances, tools, etc.  Everything else can be valued by liquidation value. You can use valuation guides for tax deductions as a way to guide your valuation. Insurance companies usually just pick a percentage of your home's value as a guesstimate for content value. I could see doing this as a way to guide purchase decisions for appliances, cars or the like. But if you are trying to figure out the market value of your socks and underwear, I would argue that you're doing something that's a little silly." Hang on.. Lawyer here.. Regarding the promised twelve loddars: why would the promise to pay the loddars be destroyed by the fire - unless the promise is eg conditional on the existence of apples at the relevant time (a more risky promise)? If it IS contingent on something in that way then surely it can't be said to be equivalent to loddars (money)? "There's no objective definition of what your house is worth between sales.  If you sell it for $107K, then that's the current functional definition of its worth.  There is not ""extra"" money to be had because you sold it for less than it was worth.  If the buyer is able to flip it for more, then the value of the house effectively went up and he will pocket the difference when he sells it. EDIT This turned out to be unexpectedly controversial, so let me be more precise in my answer.  I think this is important because it seems like many people misunderstand equity and how it figures (or doesn't) into the value of their home, which then leads to significant confusion and errors in what's many people's largest single investment. At any given time there are several possible ways to put a dollar value on your home.  A non-exclusive list that includes: Some of these obviously are more ""official"" than others. It would not be strange for these different values to vary by quite a bit at any given time. (This is what I meant in my original answer when I said there's ""no objective definition of what your house is worth between sales."") The interesting thing - and what I meant in my original answer when I wrote ""current functional definition of its worth"" - is that none of these factor directly into the transaction that the OP described of selling his house except for the last.  Using the numbers from the OP's example, that means the $107K.  Wherever the OP got the number $155K (either from one of the options on my list above or somewhere else), it won't be directly part of the sale between him and his friend. (For completeness, with a nod to Eric's comments on my original answer, some of these numbers may indirectly influence the sale.  For example, the buyer typically won't be able to get a mortgage for a value greater than the appraised value of the house, and so that might influence what he's willing and able to bid.  There may also be tax consequences if the price is artificially low, like, say, a gift.  As further expounded below, however, that's not directly relevant to answering the OP's stated question.) Now, the OP seemed to believe that there is an ""extra"" $48K in cash up for grabs in this scenario.  That comes from the $155K value that the OP claims his house has and the $107K price of the actual proposed sale.  This is a complete misconception.  When the buyer and seller sit down at closing and the title agent sums up who owes and who receives cash in this transaction, the $155K ""theoretical"" value will not enter into the calculation and therefore no one will pocket it. Subsequently, however, after the buyer takes possession, he may sell it.  If it's true that he ""got a deal"" on the transaction at $107K, then he maybe able to flip it and turn a profit.  But if that happens, it will be in a completely separate, subsequent transaction. Even if you look to this hypothetical second sale, however, the $155K doesn't really figure.  The new owner will have to find his own buyer, and they will have to agree on a price.  That might happen to be $155K, but there's no real reason to believe that it will or it won't." "This is typically referred to as the ""market value"" of your holdings--it is the revenue you would generate if you sold your holdings at that moment (less any transaction costs, of course)" "This isn't negotiations anymore. They are trying to change the deal after the fact. Stop negotiating and tell them they are bound to the agreement they signed. They are leaning on you because they know you are small and likely can't fight them. Document every conversation. Do not allow them to keep pushing after they've signed the agreement.  They accepted your bid (after giving your pricing to a competitor, which is shitty and should have been your first red flag). Then they started working on you. At that point your answer should have been ""we have a verbal agreement of x services for y price. A different scope of work is not scalable and would require a new quote.""  At this point you can either accept that they will continue to beat you up, or you can jam the contract down their throats until they agree or walk away.   I've been in a situation like this before. A major multinational asked for bid pricing that was agreed to be estimated only based on very loose requirements. Then they handed us a contract with that pricing included as ""not to exceed"".  We ended up walking away. It sounds like you may want to do the same if you can. Big companies often will have legal and payables departments that basically exist to fight any obligation to pay out money. In our case shortly after we ran into someone in our industry who'd worked with that company, and they said to assume that company would reject 30% of all invoices we sent. If nothing else, to delay payment just a bit longer so they could keep earning interest on the money.  Also, in the future I wouldn't turn away work until you are under a signed contract for a big project like this. You can't rely on such a contract to come through. If they drag feet and your schedule is full that's on them, or you bring in additional help or subcontract the work to deliver." NAV is  how much is the stuff of the company worth divided by the number of shares. This total is also called book value. The market cap is share price times number of shares. For Amazon  today people are willing to pay 290 a share for a company with a NAV of 22 a share. If of nav and price were equal the P/B (price to book ratio) would be 1, but for Amazon it is 13.  Why? Because investors believe Amazon is worth a lot more than a money losing company with a NAV of 22. To understand the answer we first have to understand what Goodwill is. Goodwill in a companies balance sheet is an intangible asset that represents the extra value because of a strong brand name, good customer relations, good employee relations and any patents or proprietary technology. An article from The Economist explains this very well and actually talks about Time Warner directly - The goodwill, the bad and the ugly When one firm buys another, the target’s goodwill—essentially the   premium paid over its book value—is added to the combined entity’s   balance-sheet. Goodwill and other intangibles on the books of   companies in the S&P 500 are valued at $2.6 trillion, or 10% of their   total assets, according to analysts at Goldman Sachs. As the economy deteriorates and more firms trade down towards (or even   below) their book value, empire-builders are having to mark down the   value of assets they splashed out on in rosier times. A recently   announced $25 billion goodwill charge is expected to push Time Warner   into an operating loss for 2008, for instance. Michael Moran of   Goldman Sachs thinks such hits could amount to $200 billion or more   over the cycle. Investors have so far paid little attention to   intangibles, but as write-downs proliferate they are likely to become   increasingly wary of industries with a high ratio of goodwill to   assets, such as health care, consumer goods and telecoms. How bad things get will depend on the beancounters. American firms   used to be allowed to amortise goodwill over many years. Since 2002,   when an accounting-rule change ended that practice, goodwill has had   to be tested every year for impairment. In this stormy environment,   with auditors keener than ever to avoid being seen to go easy on   clients, companies are being told to mark down assets if there is any   doubt about their value. The sanguine point out that this has no effect on cashflow, since such   charges are non-cash items. Moreover, some investors take goodwill   write-offs with a pinch of salt, preferring to look past such   non-recurring costs and accept the higher “normalised” earnings   numbers to which managers understandably cling. The largest companies   are thus able to survive thumping blows that might otherwise floor   them, such as the $99 billion loss that the newly formed but   ill-conceived AOL Time Warner, as it then was, reported for 2002. But   the impact can be all too real, as write-downs reduce overall book   value and increase leverage ratios, a particular concern in these   debt-averse times. It won't be worth $1050 at maturity. You are not accounting for tym.   So to see the 'worth: of a bond you will need it's yield (5%) and the current market rate of a similar bond.    Then just use the bond valuation formula to solve (on mobilw so can't explain further/better) sorry Here's my answer for what it's worth: The value of a company is, simplified, the sum of the value of the equity and the value of the debt. There are some other things to add/subtract to that, but just think about those for now.  You could also say the value of a company is the value of its assets, or more precisely the value of the net cash flows those assets will generate in the future.  So let's say you want to start a company, so you want to buy some assets. Maybe you want to buy a $200 asset. Well, you only have $100, so you take out a loan (debt) for $100 for the remainder. You buy the asset and start generating income.  Let's say after a month you get bored and decide to sell the company. Let's assume the value of the assets hasn't changed. Your equity is worth $100, and you find a buyer who is willing to pay $100 for your company. Great! Right?  Well there's still the $100 loan you owe, so you have to pay that back. And suddenly you now have $0.   So in fact, you should have negotiated $200 with the buyer, because that's what the assets are actually worth. Then you can pay back the loan and still have the $100 in equity you deserve. (Alternatively, you could have negotiated the buyer to assume responsibility for the loan; same outcome for you.)  Did that help?