If you are an Apple Mac user, you would be pleased to know that Apple continues to lead the industry in providing the safest possible computing experience. With the latest OS X 10.9.5 update, Apple has begun to enforce the requirement that all apps be signed with the latest v2 Apple ID signature. In case you didn’t know this, Apple ID signatures are issued to authorized Apple developers that create Mac apps in compliance with Apple’s stringent software quality and security requirements.
To get on the Apple Developer program, software companies must undergo a thorough background check by Apple and be approved. A unique Apple ID is issued to each approved developer firm. This ID is used by Apple to create a digital security signature that the developer uses to sign each of its apps intended for Mac users. As a result, all approved Apple developers are known to Apple and all Mac apps they create identify themselves to the users upon installation.
The signature is checked by the key component of your Mac security system, known as Gatekeeper. Introduced in OS X 10.8 Mountain Lion, Gatekeeper works to greatly reduce the risk of malicious software installation. The Apple ID signature is included in all software products from the authorized Apple developers. Your Mac issues a warning if the software you are trying to install is not properly signed.
Apple will continue to require Apple ID signatures on all software products intended for the Mac OS X 10.10 Yosemite release, which is expected later in November 2014.
All ValuAdder for Mac apps have already been signed with the Apple ID v2 signature, so you can rest assured that the apps will perform as expected both on the OS X 10.9.5 and 10.10 Yosemite.
Risk and return are two closely tied concepts that underlie valuation of any business asset. When an investor puts money into a business there is expectation of being paid at some future point in time. However, this expectation is not without risk – both of losing the investment and foregoing a better opportunity somewhere else.
So how can you go about selecting what return is good enough for an investment in a particular business? To compare companies across the broad economic spectrum, you would need a way to calculate what returns are reasonable given the risk each company represents.
Safe investment in risk-free assets
At the center of such decision making is the concept of a risk-free rate of return. This is the income you could earn by simply putting your money into an asset that pays a known amount at regular intervals. In addition, you are guaranteed to get your investment back in full at a fixed point of time in the future. In short, there is no risk of default, hence the investment is risk-free.
If a borrower can convince investors that their money is safe, all other investments must demonstrate higher returns to attract money away from the risk-free asset. The question each investor asks is why put money into a business rather than keeping it in the risk-free asset?
Extra returns for taking more investment risk
The answer is that you can earn higher returns by taking additional risks. As long as a risk-free investment opportunity exists, you can put just a small portion of your available capital into a company that may earn you quite a bit more money. If the investment doesn’t pan out, most of your capital is still safe sitting in that risk-free investment, earning steady income. But if the company is successful, you would enjoy a nice premium for taking the extra risk.
Government bond yields – the gold standard of risk-free return
Typical risk-free assets are government backed bonds, such as the US Treasury bonds. In fact, in business valuations the yields on long-term Treasurys are the gold standard for calculating the risk-free rate of return. The risk of a company investment includes a number of risk premia. That helps you come up with how much higher the return for a given company ought to be for your to bet your money on it.
This is a really nice and elegant way to figure out if a company is worth investing in. All you need to do is calculate the required rate of return and see if the company has demonstrated that it can achieve this. If so, you can make an informed decision to put some money into it and and rest confident that you have made a prudent investment choice.
What if there is no risk-free investment?
But what happens if the risk-free return disappears from the market? Let’s say the government fails to repay its bonds or make payments on its obligations to the investors?
Now the part of your investment you thought of as risk-free no longer exists. Worse yet, you have no way of calculating how much higher the returns should be on any other investment you may consider. The neat framework of calculating investment returns and comparing businesses before making a call goes out the window.
The result is investor panic. When investors see no way of keeping their money safe, in risk-free investments, they take off for the exits. If no investment is assured, the proverbial mattress becomes the safest place. Even the bank vault won’t do as banks are businesses and they can default on their obligations leaving their customers high and dry.
Moral: investor confidence is critical to business investment
This lack of faith in a default investment is devastating to the market. In a sense, the values of all assets are eroded if no risk-free investment can be found. Most investors are conservative by their nature and need the assurance of a safe haven they can retreat to in times of uncertainty. In other words, the market players need to see a gold standard that is immune to market forces to measure the value of business investments.
Business Valuation Based on Risk and Return
As a general rule, the legal system is not the best place to determine business value. Even so, the courts are often called upon to provide a definitive answer. This happens if the value of a business is a matter of dispute. Some common cases are divorce, gift or estate taxes or property tax situations.
Lawyers act as advocates for their clients. As such, they do not necessarily look for an objective measure of business value. If a business is valued for gift tax purposes, the client’s lawyers would like a number that is as low as possible. On the other hand, the government lawyers will argue for the highest amount they can support. In this situation neither side is really interested in getting at a fair market value for the company. What ends up happening in court is some form of compromise between the parties.
In this sense, the legal system is not designed to come up with actual values. Rather, the court is expected to pronounce a judgment that both sides have to accept. This is unlikely to be the same as an impartial business appraisal.
In the final analysis, business value can be determined in the market place. That is not the setting for most legal disputes. If you need to determine what a business is really worth, consider the legal system as the last resort.