Company’s value is in eye of beholder
Question: I see that Facebook has a market value near $400 billion. Isn’t that pretty high? — E.M., Walnut Creek, California
Answer: It depends on how Facebook is performing and what you think its prospects are. A company’s value is largely in the eye of the beholder.
With Facebook, you might check out a few numbers to assess its value. Its priceto-earnings (P/E) ratio, for example, was recently 39. That’s far steeper than the S&P 500’s recent P/E in the mid-20s, but Facebook is growing much faster than the average company. Its revenue in 2016 topped $27 billion, up from $18 billion in 2015. Over the same year, profits surged from $3.7 billion to $10.2 billion. Fast growers tend to sport steep P/E ratios.
For more context, consider the approximate recent market values of Apple ($730 billion), General Electric ($265 billion), Google parent Alphabet ($575 billion) and Amazon. com ($400 billion). Looking at those, does a $400 billion value for Facebook seem reasonable? Think about how reliable its expected earnings and growth rates are, and how sure you are that it will still be around in five or 10 years.
Facebook is not without risks, such as falling out of favor, but many investors expect it to successfully generate revenue from its daily users, who number more than 1 billion. (The Motley Fool owns shares of and has recommended Facebook.)
Fool’s School:
Know your RMDs
If you’ve been saving for retirement in a tax-deferred account, you may be subject to required minimum distributions (RMDs) one day — even if you don’t need the money.
RMDs are mandatory withdrawals you must take from certain retirement accounts after you reach age 70 . (They’re sometimes referred to as minimum required distributions, or MRDs.) The RMD applies to accounts you contributed to on a pre-tax basis or that contain tax-deferred investment gains — such as traditional (non-Roth) IRAs, traditional (non-Roth) 401(k) or 403(b) accounts, Keogh accounts, SEP IRAs, SIMPLE IRAs and more.
You need to take your first RMD from your tax-deferred retirement accounts by April 1 of the year following the calendar year in which you turn 70 . For example, if you turn 70 in 2017, you’ll have until April 1, 2018, to take your first RMD. In subsequent years, you need to take your annual RMD before Dec. 31. Note that this means you might take two RMDs in the first year. That can be problematic if it propels you into a higher tax bracket.
Your RMD doesn’t have to be a lump-sum withdrawal. You can take money out throughout the year as long as you have withdrawn the required amount before the deadline.
If you fail to take your RMD, the penalty is extremely harsh. The IRS can penalize you 50 percent of the amount of the RMD not taken by the deadline. So if you fail to take an RMD of $20,000 on time, the IRS can fine you a whopping $10,000.
So how is your RMD calculated? It’s based on the balance of your retirement account, as well as your age and the age of your spouse, if you have one. IRS tables can help you determine your RMD each year — and many companies that manage retirement accounts will calculate it for account holders. For practical retirement guidance, try our “Rule Your Retirement” newsletter for free at fool.com/shop/ newsletters.
Foolish Trivia:
Name that company
I trace my roots to a broken typewriter ribbon in 1985 that caused my founder to envision a supermarket for office products. I opened my first store in Brighton, Massachusetts, in 1986, and by 2002, I was the world’s largest seller of office supplies. I have more than 1,000 stores in the U.S. and Canada and more than 200 in Europe. My market value was recently near $6 billion. The Lakers play in a center that bears my name — though it’s about 3,000 miles from my headquarters. Who am I?
Last week’s trivia answer
I trace my roots back to 1928, when two cousins named Ed made a folding wood-slat reclining chair for porch use. A year later, they upholstered it for indoor use — and gave it a name that some might find insulting. Today, based in Michigan, I employ more than 6,000 people and sport a market value near $1.4 billion. Who am I? (Answer: La-Z-Boy)