# What should the value of a private sector company tell us? [closed]

At the highest level, would you say that regardless of market/economic environment (free/regulated), a company's value should reflect its ability to efficiently and effectively bring products and services to market that improve the lives of consumers?

Perhaps this is more of a philosophy/ethics question; cant think of any valid argument against this.

For some context, my train of thought is: If the values of all companies do reflect their ability to improve the lives of consumers, then an equity index should therefore be an indication of how good the private sector is at improving life. The value of an equity index allows us to consider the health of a particular market. The financial markets are complex systems in which both physical and mental health are two large constituents. By physical health, I mean the bodies of employees, the buildings in which they work and the technology they use for example. By mental health, I refer to the emotional and psychological well-being of individuals, teams, whole companies and markets.

• It seems to me that this is a statement disguised as a question. Also there are quite a bit of murky details. As a lowly economist I am not sure I know what you mean by "highest level", "should" and I don't know how you would measure improvement of life. – Giskard Oct 8 '15 at 19:36
• highest level = as simple as possible, dont want to get into the detail of how equity is calculated in a companies financials for example. Should = it probably doesnt work that way because companies act in the interest of shareholders not consumers - should this be one and the same because profits come from creating demand and delivering good products to consumers effectively? – DVCITIS Oct 8 '15 at 19:40
• not sure how to measure the improvement of life either - that is what im trying to address. Perhaps the financial markets would help gain some insight if they operated as stated in my opening paragraph. This is why im testing its integrity. All arguments or reading suggestions very welcome.. – DVCITIS Oct 8 '15 at 19:46
• Are you familiar with the welfare theorems of economics? If not I highly recommend those and the entire Intermediate Microeconomics of Hal Varian while you are at it. Once you know what you exactly define as welfare, efficiency etc. you can move on to the finance part. – Giskard Oct 8 '15 at 21:29

A company's value, in financial terms is given by its equity, or its difference between its assets and liabilities. The well known expression $E=A-L$ reflects this. When you buy a share, you buy a part of the equity. The point is that since the world we live in is dynamic, decisions today affect outcomes tomorrow. As a result, when you buy part of this equity, you are buying part of the claims on the firms' expected future profits. The market rewards those goods that consumers demand more with a higher price and one can definitely make the argument that a firm's future profits are conditional on it producing goods/services that are valued by the public. Whether or not the goods themselves improve the lives of consumers is a separate question altogether. Do we always buy goods that improve our lives? What does that even mean?