How credit, debt, and interest is replace by equity PDF Print E-mail
Written by Prof. Paul Douglas Katchings   
Friday, 29 May 2009
How credit, debt, and interest is replace by equity
By Paul Katchings All Rights Reserved 2009


Credit, debt, and interest will become insignificant one day in 2009-2012 because of a new economics.   These three things will be replaced by equity for 3.6 billion consumers.

The new economics recognizes that humans can only work and consume. In the new economics there are only two components to the economy:


a)    the labor units producing the value, and
b)    new customer-owned public companies capturing the fruits of the labor units’ efforts.


The capturing of the labor units’ spending is called consumption, which is also known as revenue to businesses.

Businesses that are public companies can produce more value than a non-public company.  This value is expressed in the formula SP=(A*B)/C where stock price (SP) is equal to revenue (A) times gross earnings margins-earnings (B) divided by a rate of return (C).  We can now engineer SP=(A*B)/C to produce a value for the public company where the total value – called capitalization – is greater than the revenue.

When we share the value of the public company with the customers who produced the revenue then we can predict revenue precisely and reward the customers with free equity value that is 11, 20, 40, and even 235 times the price of the products and services.

The key to creating this multiple value for the customers are the allocation of a fixed ratio of the stock authorized for a new public company and controlling the A-B-C variables starting with revenue.

The only way to predict revenue (A) is to first assemble the customers into a network of 14 million participants – a precise number required for the ultimate value creation for each participant.  To keep the number of participants permanently attached to the network requires that the network become a public company where the participants own it.

This primary public company is a factory that turns out one publicly traded company daily – 364 per year – to feed the appetite of the 14 million participants.

Now that the customers are preassembled the revenue produced by the public companies from the purchases of the products and services by the 14 million customers daily is guaranteed.  Unnecessary costs of excess inventories, marketing, advertising, and sales are simply eliminated.  What this means is that each new public company is guaranteed 14 million sales with reduced costs and economies of scale.

Factories require standardization to further reduce cost, thus increasing the value of the company. The budget is standard, consisting of four parts. The standard numbers of authorized shares for each public company turned out daily by this factory is 61 million shares.  The standard distribution of these shares in each new public company daily is 31% for the “idea/startup owners” and 69% for the 14 million partners.  The “idea/startup owners” are among the 14 million partners.

This means that 14 million partners are allocated 3 shares each in each new public company after they purchase the product or service.

Let’s say the product or service purchased from each new public company is $30.  Let’s say the gross margins (or earnings) are 63% and an acceptable rate of return is 3%.  Then we can engineer in advance of the purchases of the products and services the stock price for each new daily public company.  This is possible by having the customers preassembled.

Facts:

•    Company A: turns out a software package needed by 14 million customers
•    Shares outstanding: 61 million
•    Revenue is: 14 million participants times $30 for $420,000,000
•    Gross Margins: 63% (this is an example only so we use margins instead of earnings)
•    Rate of Return: 3%

Based on these five facts we have a stock price of $144.59 per share  ($420 million revenue times .63 divided by 61 million shares divided by .03 rate of return)

The stock value for each of the 14 million participants is $144.59 times 3 shares or $433.77.  This $433.77 is what is called the Product Equity Value© for this software package.  This is how all products and services turned out daily by this factory company have a Product Equity Value© of  11, 20, 40 or 235 times.

The ratio of purchase price to Product Equity Value© is 14.459 to 1 ($433.77 divided by $30) in this example for 14 million customers.

Thus credit, debt, and interest is replaced by equity or Product Equity Value©.  When customers merely purchase their need-based products and services from publicly traded companies, they will have $52,630.81 in their Product Equity Value© account at the end of 364 days.  How is this?  Collectively, the 14 million customers own 69% of these publicly traded companies.  Each customer owns 3 shares in each company, given to him or her free after each purchase.

Thus Product Equity Value© eliminates the need for credit, debt and the paying of interest on the debt caused by credit.

Notice that this example company is worth, or has a capitalization of  $8.829 billion (61 million times $144.59) and the 31% owned by a new startup owner is worth $2.734 billion daily!


Paul Katchings
Business Engineer

Last Updated ( Tuesday, 14 February 2012 )
 
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