Benjamin Graham: Minimum Size of the company
Smaller markets can actually be more volatile so it's not a good idea to lower Graham's criteria for them. The only real adjustment possible is inflation adjustment. $100 million in 1973 United States works out to $500 million today based on the difference in CPI/Inflation from 1973. This number will be different for other markets where the rate of inflation since 1973 has been different. So the real question to ask is - what is to $100 million in the United States in 1973 worth today in your market? Source: http://www.serenitystocks.com/how-build-complete-benjamin-graham-portfolio If you look at the value as a composite, as Graham seems to, then look at its constituent parts (which you can get off any financials sheet they file with the SEC): For example, if you have a fictitious company with: Compared to the US GDP (~$15T) you have approximately: Now, scale those numbers to a region with a GDP of, say, $500B (like Belgium), the resultant numbers would be: Benjamin Grahams strategy was to invest in REALLY SAFE stocks. In his time lean businesses weren't as common as they are now and he found many companies with assets greater than the value of their shares. Putting a number figure on it isn't really necessary but the concept is useful. Its the idea that bigger companies are less turbulent (Which is something to avoid for an investor). Most companies in the top 500 or whatever will satisfy this.
If any new taxes are levied on me, or my company, as our current President plans, I will have no choice but to reduce the size of this company,  Those are income taxes right? So like, he's not saying he will be forced to fire people to maintain a viable business, he's saying he'll have to fire people to maintain his level of profits.  Of course, less profit is still profit so he wouldn't *have* to fire people, he could keep running the business as it is and just make less money...but then how would he [build the biggest house in america??](http://www.imdb.com/title/tt2125666/) "Finance is ALL about obscure theoretical points. This one actually isn't even that obscure, kind of like a big gaping whole that nobody addresses.   So to address your ""minimum cash"" level point. That's what I'm working towards. Check this:  So if you are selling your company, and all of the potential buyers are public companies, you would adjust your working capital balances in your model to match the public company market benchmark (ie: days payable outstanding, days receivable outstanding). This would be some sort of ""added value"" that a public company would bring to the mix.    You should do the same for cash. You would benchmark what level of cash the comparable public companies hold (possibly as a % of revenue?), and apply that as the level of operating cash.   You're counter argument would be that some firms may choose to hold on to excess levels of cash for a period of time (Apple), skewing ""minimum cash levels"" upward. That's true, but over a period of time, investors would either (1). demand the excess cash back or (2) investors would sell shares because the company is not earning a sufficient return on equity. My second point is half baked and not fully thought through but it goes along with the idea that a company will dividend out excess cash if it cannot reach the hurdle rate demanded by investors.  Thank you for continuing the conversation with me, I think you're the only one that gets it." "You're mixing up rhetoric (aka discussion and argument) with dialectic (the ""logical"" search for absolute truth).  No essay about business could possibly be dialectic. Mine isn't. Paul Graham's certainly aren't. Therefore they are rhetoric, discussion and argument.  And ""This person has much to gain if you do what he says"" is an absolutely valid argument.  BTW - I'm self-taught. If you want to learn more, I highly recommend ""Thank You For Arguing.""" "That's not how monkeysphere as a concept works.    It's a very specific concept related to the total size of our ""active"" social network, it has nothing to do with generalizing an entire business to it's CEO.    The monkeysphere holds that we have a maximum number of social connections we can maintain with any relevant level of intimacy and social cohesion.  It holds that unit cohesion breaks down when the organization exceeds that threshold, because members can no longer keep track of all other members as individuals.    It's an excellent HR management theory, and one that's well backed, but has absolutely nothing to do with the context you're using it in." "There is no general theory to support the notion that larger companies will be more profitable than smaller companies.  Economies of scale are not always positive, one can have diseconomies of scale too.   It is more common to talk about an optimal firm size, even going back to Stigler's (1958) ""The Economies of Scale.""  Intuitively, if economies of scale extended indefinitely, then natural monopolies would dominate all industries in the long run. A profit ratio, unfortunately, wouldn't quite get at scale economies.  Consider, for example, that the denominator of your metric would be profit+cost and that you are trying to get at the cost reduction that derives from scale.  Then, you are measuring the size of a company by the exact metric that should be reduced if scale economies exist, so the calculation would be a bit confounded. It is my understanding that such assessments are usually conducted at the industry level by determining whether the industry is becoming increasingly concentrated among fewer firms over time. (Again see Stigler).   If concentration is increasing, there is an implication that, at current firm sizes, there are economies of scale in the industry." Here is something I have always wondered. Companies are required to go public after they have a certain number of investors. Used to be 500 now 2000. Can a company that has been forced to go public, then be made private again? How? There would be a catastrophic collapse in the financial industry.   Not exaggerating. Every bank is a company that's technically held by another company, a bank holding company. Every investment firm typically has anywhere from dozens to thousands of separate little companies (depending on the size of the overall firm) that it uses to manage money and risk.  There's ways to try and solve agency problems and moral hazard problems in corporate governance, but disallowing corporations from creating wholly owned subsidiaries is not the way to do it. In addition to the GE move, Buffett's firm also added a large share of Synchrony, equalling about $520.7 in value, and a $418.1 million stake in Store Capital.   So, they bought one regular sized share? This is Why BI-journalists doesnt work in IB... If I recall correctly off of their quarterly reporting, their major expense was Admin/Overhead.  I think it comprised of half of their expenses.  My disclaimer is that I just took a quick look at their financial report and might be remembering incorrectly. You are absolutely correct, incorporation and the fiduciary responsibility that comes with it almost always leads to a sacrifice in product quality and long-term business principles. I always think of the difference between McDonalds and In-n-Out hamburgers as examples of where each road leads. "Company Distribution is attempting to show a histogram of how many companies fall within a given range so you can visualize the number of companies that meet a certain parameter.  For example if you move the ""Market Cap"" sliders so the minimum slider is just before the large rise in the distribution and move the maximum slider so it is just after the fall off in distribution, you can see that most companies have a market cap between ~5700 and ~141B." Companies in their earliest stages will likely not have profits but do have the potential for profits.  Thus, there can be those that choose to invest in companies that require capital to stay in business that have the potential to make money. Venture Capital would be the concept here that goes along with John Bensin's points that would be useful background material.  For years, Amazon.com lost money particularly for its first 6 years though it has survived and taken off at times. "By issuing additional equity. In this case, the pie isn't ""fixed,"" it's getting bigger. Now, to avoid lawsuits and other potential issues (some of which may be unavoidable), the owner will likely need to subscribe for additional equity himself.  Example:  100 shares outstanding. 51 to owner, 49 to 2 others.  That 49 will have to equal 20%, as none of their shares are being sold (likely). This means total shares will need to be increased to 245.  Subtract 49 from that number: 196  Marcus gets half of that at a determined price. 98  Owner must increase his stake from 51 to 98 shares. To do so, he'll need to contribute additional cash for the same price Marcus gets in on. That could be expensive." "they are purchasing the company"" is this correct? Yes this is correct. If I purchase a ""company"" here in Australia, I also purchase its assets and liabilities Yes that is correct. How can it be NIL? How can it be legal? The value of shares [or shareholders] is Assets - liabilities. Generally a healthy company has Assets that are greater than its liabilities and hence the company has value and shareholders have value of the shares. In case of TEN; the company has more liabilities; even after all assets are sold off; there is not enough money left out to pay all the creditors. Hence the company is in Administration. i.e. it is now being managed by Regulated Australian authority. The job of the administrator is to find out suitable buyers so that most of the creditors are paid off and if there is surplus pay off the shareholder or arrive at a suitable deal. In case of TEN; the liabilities are so large that no one is ready to buy the company and the deal of CBS will also mean nothing gets paid to existing shareholders as the value is negative [as the company is separate legal entity, they can't recover the negative from shareholders]. Even the current creditors may not be paid in full and may get a pro-rated due and may lose some money." The Bible of fundamental analysis was written by Graham and Dodd, and is titled Security Analysis. If you don't know the name Benjamin Graham, Warren Buffet was his student and attribute his own success to Graham.  If Security Analysis is a bit too intense for you, Graham also wrote The Intelligent Investor which is probably a better starting point.