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Comment by rfgplk | Hacker News Reader

Companies IPOing should be forced to put up their estimated market cap as collateral in cash. Oh what is that? You don't have $1 trillion in cash to put up? Cool, you're not a $1 trillion dollar company then.

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This makes no sense. Market cap and cash reserves are two different stats for a reason. Why would they need to be the same? Just to make things simpler for people who don't actually know what market cap means? (Which, granted, is the vast majority of people.)

This makes no sense: the whole point is to raise capital. The valuation is never just the current value of the assets; it’s based on the expected future cash flows. A good example is in biotech, some researcher developed a treatment and wants to develop a product. They have valuable IP but zero money. So they IPO to raise capital to bring the treatment to market. The investors expect that in the future, they will get dividends or a buyout.

If a company that wanted to IPO had 1 trillion dollars, their market cap would have to be larger than their cash holding. Their cash on hand is considered or at least should be considered in any normal valuation of the company. Because shares are ownership of the company.

So a simple valuation would be something like Current Cash + Assets + Expected Future cash - (Expenses + Risk)

Where would a company ever get their market cap in cash? If they had that, wouldn’t they by definition have a higher market cap, since the value of the company is cash + the rest of the company?

> since the value of the company is cash + the rest of the company?

Failing companies sometimes trade below cash value. OP's basically creating a rule by which only failing companies are allowed to go public. (Or those who have paid a king's ransom to a megabank.)

Companies always trade at a premium to book, so how would that work?

Last year Chegg was trading below net cash (meaning their market cap was smaller than cash in the bank minus debt). Might still be, I haven't checked in a while. There were maybe a hundred on the Tokyo stock exchange trading below net cash.

Some companies trade at a discount to book value (very normal for banks, for example, especially those from e.g. Pakistan).

In theory the purpose of an IPO is to raise cash to expand a company. If the company already has the cash they don't need to do an IPO.

the marketcap represents the cashflow estimated by the market to be taken out of the business over the lifetime of the company discounted today.

your suggestion makes no sense

...what?

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