[zby]

"It's like, if there are four partners in a partnership and two decide to buy out the other's shares, their shares are now worth twice as much, assuming the corporation continues making revenue." - I don't understand how you calculate that. Let's say there is a company with 4 shareholders with equal shares and with discounted future earnings of $2 million plus $2 million of cash. That makes the company worth $4 million and each share worth $1 million. The company then buys two shares for the $2 million in cash it has. That makes the company worth $2 million (it has no more any cash and the discounted future earnings are worth $2 million) - and the two shares left are each worth $1 million - exactly like before the buy out.

[tathougies]

Companies capital reserves often don't count in valuations. It's just the discounted future earnings. Cash sitting in a company's coffers would often count against it, since the rate of return on capital would be lower (larger denominator), and investors are seeking a higher rate of return.

The fact of the matter is, companies should not keep 'emergency cash reserves' enough to operate for six months. The money should be returned to shareholders. Shareholders and other investors should keep liquid cash reserves for emergencies. Then, when companies face emergencies, they should issue new stock to the markets, and the saved up emergency capital can be used. That leaves individual share holders and potential shareholders to decide the fate of companies, which seems more in the spirit of democracy.

[lotsofpulp]

You have to factor in expected growth, divvied amongst fewer shares.