share in company for a new partner??

Question

i don't know a lot about economy so i would like somebody to please help me out. In a commercial company (shop) that has been running for two years and the last year had profits of 100.000€ and merchandise of 10.000€ in stock and this year has been an investment of 100.000 in mechandise what is the capital that somebody has to offer so that they get 30% of the profits?? I don't know if any additional details are needed so that there can be an estimate but i would apprecciate any help, or links so i can get an rough idea.. thanks a lot!!

Answer 1

well, presuming capital input will earn percentages of the dividends then: -

assuming no debitors or creditors (ie no-one owes the co money, the co owes no-one money) then

company balance=210.000

therefore to input enough capital to own 1/3 of the co, you must assume that 210.000 is 2/3 of the fina value and therefore that 210.000/2 is the value required to make it up

ie 105.000

Answer 2

Fair price should take into account the 2 years worth of effort already put in by the current owners to make the Company profitable.

If profits are 100k, then 30% of this is 30k.

p/e ratio for a profitable shop should be in the region of 12 to 18 ...

At the low end we have Companies that are not expanding but have good revenue streams.

A p/e of 12 suggests a fair price of 12 x 30k = £360k.

However if the Busines is expanding rapidly and profits are holding up, this might well be a fair price at the high end i.e. £540k.


Alternative is to look at dividends (yield). You say 100k profits but don't mention if this is paid out or retained (i.e. is the 100k new investment == retained profit ?)

Assuming not, and that the entire proifit is paid out, then 30% of 100k = 30k dividend.

Yield on most small stocks varies greatly from zero to 20%.

If we assume 10% (to be honest, this would only be true if the Business is not expanding).. this would suggest a fair price of £300k (10 x 30k).

However a more realistic yield on a rapidly expanding Business would be more like 3% .. this gives a fair price of 1,000k