What’s the value of your pizza business now? It doesn’t take long before your restaurant isn’t as crowded, the revenues not as stellar and the business barely breaks even. He sets up shop across the street, buys an oven, hires some staff and starts selling pizzas – perhaps even better pizzas than yours. A sneaky entrepreneur who spotted that your pizzeria was always full, even though your pizza really wasn’t that great.
It isn’t tangible, we can’t observe it we can guess, but nothing more. Since this isn’t traded daily, and no similar pizzerias have been sold recently, nobody knows what this number is. You’re too small to be a listed company with a minute-to-minute price of your shares, but since the business is well-run and makes a profit, a buyer would be willing to pay some nonzero amount for the business, say x – the market value of the pizza joint. You sell good pizzas and make a decent living. However much we love our homes and the dollar figures that realtors assign to them, those values are not ours until the day we sell.
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