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In Book 3, we discussed the worth of a company is determined by the profit it is generating and the profit it is predicted to generate. We call it PE or Price to Earnings Ratio. In Illustration 101 and 102 in Book 3 (Kindle Edition) or Illustration 100 & 101 (Printed Edition), we have shown some of the estimated earnings (wealth generation) of several assets and by fixing the PE, we can then compare the assets or wealth value of each asset. We then changed the time variable of PE to reveal that investing in gold, in spite of having an infinite “life”, would yield nothing and thus it has an asset value of 0; certainly a poor choice for investing your hard-earned money.
This video presentation will show the mathematics involved in determining the price of assets and will give further understanding on the concept presented in the book.