I have this theory – book value of equity should never grow by the profit each year, in fact there should be no net profit at all. Look at it this way, the price of any product/service can be broken down into its constituent costs/value additions. The balance amount is called business profit. However, there mostly is no direct tangible contribution by the owners of the enterprise for taking this share. The jobs executed by an owner/part-owner (Chairman, CEO, etc.) should be treated as services rendered by an employee of the firm independent of his/her ownership in the firm. All the contribution as an owner is at the overall company level, whereby he/she should be rewarded for the risk carried as stake-holders in the enterprise. However, this is something that cannot be quantitatively priced-in.
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