Paper valuation

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orphan = July 2008

Paper Valuation is a value of privately held shares that is not directly tradable at an exchange. The value is still to be converted so to speak.

The opposite of paper value is exchangable value. Value that is tradable at an exchange is not a number on paper. Exchangable value is directly monetizable as long as there is a willing buyer and a willing seller.

One example of Paper Valuation:

"Owner A owns 100% of a privately held company and wants to sell 5% of the company's total shares for a sum of $10,000. Buyer A is willing to purchase 5% of Owner A's shares for $10,000. What this means is:

Paper valuation of the entire company becomes $10,000 / 5% = $200,000. Owner A receives $10,000 cash and becomes $190,000 richer on paper ($200,000 X 95% of shares). Buyer A now owns 5% of a company he wanted to own a part of."

If this exchange was made as an "Exchange Valuation" this new company valuation would be tradable directly on the stock exchange. Almost directly monetizable. The thing with Paper Valuation is that is not that easy to monetize in a short time period. On the exhanges you can sell it off immediately or at least in less than a week, because there is a ready market for it.

This valuation concept is a cornerstone in the stock exchange world. Value exchange is paramount to its existence.