Join Jim Stice for an in-depth discussion in this video Use price-to-sales ratio to value foreign companies, part of Finance Foundations: Business Valuation.
- To illustrate the usefulness and meaning…of the price to sales ratio,…let me show you a little case that we do…in our financial reporting classes.…This case is based on an interesting event…in China in 2008.…Now first some background.…The large telecommunications companies in China…are majority owned by the Chinese government.…As a result, they are called state owned enterprises,…or SOEs.…In early 2008, there were six large state owned…telecommunications companies in China.…The Chinese government decided to restructure the industry,…creating three companies out of these six.…
The restructuring was designed to create…three large competitors, each with a large base…of both mobile phone customers…and old, legacy, fixed line customers.…An interesting element of this restructuring…was that one of the companies, China Unicom,…was buying another Chinese SOE,…China Netcom.…The price was set at 165 billion yuan.…That's the Chinese currency.…At first you might think that it doesn't matter…what the price is, because with both companies…
Make sure to check out the Stice brothers' other accounting and finance courses to understand the other economic factors that impact your business.
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