Publicly traded companies can go private again

Motley Fool

Q: I read that a company might be “taken private.” What does that mean? — F.L., Columbia, Missouri

A: Companies often start out privately owned by their founders. If they grow and prosper, they may “go public” via an initial public offering (IPO), selling a chunk of themselves in shares on the stock market. Companies can go in the opposite direction, too, becoming private again, if their shares are bought back and no longer trade publicly.

A high-profile example of a company being taken private is Dell. Founder Michael Dell, in partnership with a private equity firm, took his struggling computer company private in 2013. Now it looks like Dell will go public again.

Q: Does a low stock price mean a company is small, and vice versa? — H.T., La Crosse, Wisconsin

A: Not at all. The stock price alone doesn’t tell you much until you relate it to other numbers. To get at a company’s market value, multiply its stock price by its number of shares. You have to factor in the number of shares to get an idea of a company’s size.

If Keyboard Depot (ticker: QWERTY) had a stock price of $100, for example, and 10 million shares outstanding, its market price (“market capitalization,” or “market cap”) would be $1 billion. (Size can also be measured by other factors, such as revenue or employee count.)

Consider that Cheesecake Factory, Starbucks and Verizon Communications were all recently trading for around $54 to $55 per share, but their market caps were, respectively, about $2 billion, $74 billion and $226 billion. Meanwhile, WD-40 Company recently had a share price near $188 but a market cap of $2.5 billion.

Fool’s school: 15-vs. 30-year mortgages

The 30-year mortgage is the most common home loan, but don’t assume it’s the right one for you. The 15-year mortgage has a lot of upside for the right person.

The main advantages of the 15-year loan are that you’ll often get a lower interest rate, and you’ll definitely pay less in interest over the life of the loan, building equity faster. The main downside: Your monthly payments will be higher. The 30-year mortgage’s main advantage is lower monthly payments — but you’ll pay much more in interest and your interest rate will likely be higher. Still, with more affordable payments, you may be able to buy a bigger home.

Imagine, for example, taking out a $200,000 mortgage to buy a $250,000 home. If you have a 30-year fixed-rate loan with an interest rate of 4.5 percent, you’ll pay $1,013 per month, and your interest paid over 30 years will top $160,000. With a fixed-rate 15-year loan at 4 percent interest, your monthly payment will be $1,479 and total interest paid less than $70,000.

Still, 30-year mortgages can make financial sense. After all, you’re probably saving for retirement, and by not spending too much on mortgage payments, you can sock away more each month. Money is likely to grow faster for you long term in the stock market than in real estate.

Here’s another smart strategy: Take a 30-year loan with lower monthly payments, but make extra payments to pay down the principal faster. That can lop many years off the life of your loan. (Be sure to get a mortgage with no prepayment penalty.)

Name that company

I trace my roots back to 1847, when a tobacconist opened a cigar shop in London. Some of the companies now part of me are as old or older. I made my first cigarette in 1854. An American company bought me in 1919, and I introduced my Marlboro brand in 1924. Today, I encompass cigarettes, cigars, tobacco, vaping products, wine and more, including a stake in Budweiser’s maker. My brands include Copenhagen and Skoal. I spun off my international division in 2008, giving it my founder’s name. My newish name is derived from the Latin word for “high.” Who am I?

Last week’s answer

I trace my roots back to 1886, when a traveling book salesman recruited women to sell perfumes. Today, I offer scores of products, with names such as Skin-So-Soft and Advance Techniques, and my sales force of independent representatives numbers around 6 million. I can boast of 90 percent brand recognition in most major markets worldwide. In 2016, I spun off my business in the U.S. and Canada into a new, privately held entity that added the word “New” to my long-standing name. I sell housewares and jewelry, but beauty products are my bread and butter. Who am I? (Answer: Avon Products)