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Subject: Valuing Companies rss

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Pas L
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Hi everyone,

This forum is a little dead, so I thought I might see if a little discussion could get going. I'm just throwing this out pretty unpolished, to see if there is any interest in this type of discussion.

When it comes to valuing companies there are a lot of factors to take in to account, and the significance of those factors change from game to game, however a discussion of those factors might be useful to draw out some elements of that game people might not otherwise see.

The below is a series of points that play in to how we might value companies in the game, and applies to the decisions we make when acquiring companies, proposing mergers, and bidding on mergers.

The ability to value companies well is the main skill of Indonesia in my view, and navigating the below variables is what allows a player to do this more confidently.

1. Safety

Safety is the term I'm going to use to indicate if a company is exposed to being merged. Companies can be safe for a couple of reasons, be it due to the lack of sufficient merger tech in the hands of other players, the lack of appropriate companies with which they might be merged, the lack of slots into which the might be merged, or the lack of money in the hands of other players to pay the initial merger fee.

When looking at safety it is useful to think of it in terms of rounds, ie how many rounds could it be before this company could be at risk, and in what ways would that happen? Knowing how safe a company is it a significant element of its value, and has an impact upon other elements.

2. Floor value

This is simply the minimum amount it would cost for that company to be part of a merger.

3. Competition

This is the number of other companies of the same type, either already in the game, or that could be added to the game in later eras, that share access with a company. Competition is not necessarily a bad thing, but it must be taken in to account.

In the case of shipping companies this applies to companies that might share the same access.

Where competition is present turn order becomes highly significant in how it impacts operating income.

4. Access (producers)

Access is the current and potential future shipping connections of a company to cities. Access is limited not only by currently placed shipping companies, but the expansion of those companies, the placement and potential of new shipping companies, and the hull power of those companies.

Access and the control of potential future access is an important consideration for any company.

5. Access (shipping)

Access is the current and potential future shipping connections of a company to producers and cities. Access is limited not only by currently placed shipping companies, but the expansion of those companies, the merger of shipping companies, and the hull power of those companies.

6. Growth

Growth is the potential of a company to expand, and the cost and implications of that expansion. The growth of a company is significant insofar as it can impact on the growth of other companies (including era timing), on the company's access, and on the future shipping obligations of the company. Growth is not always a good thing for the value of a company

7. Opportunity cost

Opportunity cost in this sense is used to cover the ability to undertake other actions if the slot of the company was freed up.

8. Operating income

The operating income of a company for an upcoming round can often be straightforward, but the more variables there are in the above factors, the more difficult this is to get a strong hold on. Calculating the potential future operating income of is usually highly imprecise.

9. Other players

Unspoken about all the above is the fact that, nearly always, all of these elements will be different for different players. The relationship between operating income and shipping is the clearest example of this, but it extends down to even the smallest of factors. Identifying the core differences in how other players see a company is fundamental to adjusting your own valuation, especially in multi-player games where situations can reward or hinder only part of the playing group.
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Lucien Copus
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Some more food for thought. It can be important who owns the companies and who is bidding. Imagine a situation where the I'm bidding against a player who is behind, and I don't have any equity in the parent companies.

In this situation it can make sense to stop bidding at under full value, all extra bids are doing is transferring more cash from the weak player to a strong one.
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Pas L
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Ogrecrusher wrote:
Some more food for thought. It can be important who owns the companies and who is bidding. Imagine a situation where the I'm bidding against a player who is behind, and I don't have any equity in the parent companies.

In this situation it can make sense to stop bidding at under full value, all extra bids are doing is transferring more cash from the weak player to a strong one.


Aye, this is a more explicit element of what I tried to capture generally under "Other players".
 
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Grayson
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I find there is an interesting relationship between 3, and 6 (but also 4/5 in addition to that). In particular, sometimes not winning a merger can be more damaging than taking their company. Bonus points if you can trade someone else getting a monopoly for them having to ship everything simultaneously, and merging boats so that hull values drop...

That sort of situation can impact your valuation, and being aware of that requires a certain amount of vigilance (and experience) on the players part.
 
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Nikolas Co
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Re: opportunity cost:
For some specific examples, I think the following are important to consider:
* Acquiring a new company
* Another merger


Re: other players:
One specific consideration is the shipping+production in each player's hands. For example, a player with a shipping company may wish to acquire a (merged-)production company to generate revenue by forcing other companies with the same good to ship further. Also along these lines: a merged company might be worth less to players because they effectively split their profits with others (due to shipping).
 
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Pieter
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I am not a great Indonesia player, but I have a feeling that all other things being equal, in a 3-player game, in the early game the production companies are worth significantly more than the shipping companies.

The simple reason is that in the early game, too few production companies are active and the shipping lanes too short, so that the player with the shipping companies quickly falls behind the players with the production companies. That little bit of difference in income at the start may ultimately lead to victory of the player who is a bit ahead. Like most Splotter games, every round matters, even the first one.
 
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Grayson
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Flyboy Connor wrote:
I am not a great Indonesia player, but I have a feeling that all other things being equal, in a 3-player game, in the early game the production companies are worth significantly more than the shipping companies.


As with many things in Indonesia, it definitely could be. I think the value of shipping is dependent upon where you place cities and then how folks place ships afterwards. Anything that hinders efficient goods delivery has the potential to benefit someone focusing on shipping being their primary revenue generation. So far away cities, cities that don't upgrade, inefficient ship placement to require more hops (e.g. south of Java). 3p is interesting in that you have the fewest cities of any player count so goods are going to be more likely to have to travel somewhere to sell. A 3p game where cities don't upgrade (because spice/rice doesn't cross the middle of the board until mid/late game), and they are placed at far-flung areas would make a difficult game for production. Certainly not impossible, just tougher...
 
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Pieter
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But my calculation is more:

3-player game, one player takes rice, one player takes spice, one player takes a shipping company. The single ship is placed in such a way that one of the other players can ship, let's say the rice player. Then the rice player makes 15 bucks, the shipping company 5 bucks, and the spice player makes nothing. If the shipping company places his ship in such a way that both of the other players can deliver, he makes 10 bucks, but then both the other players make more.

The conclusion should be that the shipping company should place his ship in such a way that neither of the other players can use him, so that nobody makes anything. Then the turn after, probably both other players take a shipping company to deliver their own goods. That means that the shipping player has to take a production company to make any money at all (unless he can then extend his current shipping company so that both other players must use him in the second round, for two ships each, which is highly unlikely). This more or less evens out the competition, but the shipping player will never do better than both competitors.
 
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Martins Livens
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Flyboy Connor wrote:
But my calculation is more:
The conclusion should be that the shipping company should place his ship in such a way that neither of the other players can use him, so that nobody makes anything.


It should be possible for 2nd player to place his ship that force 3rd player to ship for 10 bucks in theory or no? And resulting distribution would be 15/15/10. Where ship owner is one of rich players.
 
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Grayson
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Flyboy Connor wrote:
This more or less evens out the competition, but the shipping player will never do better than both competitors.


I agree with your early game math, but I hesitate to say "never". It's such a strong word, and I've seen it work in practice, but it won't work in the early game. Big shipping doesn't really click until mid/late game once you've got a network down that creates a bottleneck problem for production players and have merged shipping companies in a way that it requires multiple players use your route to ship (and thus, yes, you don't beat out any individual player for shipping funding, but the cumulative effect is that you make more over the entire OR).
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