Final answer:
Entrepreneurs typically value companies not only on current financial performance but also on factors like future growth potential and the company's broader strategic opportunities. Venture capitalists in particular rely on detailed insights that go beyond immediate financial metrics.
Step-by-step explanation:
b. False.
While a company's current financial performance is an important factor in its valuation, entrepreneurs and investors often take a broader view, especially in the case of small companies or startups. They may consider the future growth potential, the business model, the strength of the management team, and strategic opportunities. In particular, the company's potential for earnings and future profitability is usually more crucial than current financial performance alone. Venture capitalists, who may invest in such companies, often have detailed insights into the company's operations and future projections which guide them in valuing the company.
A small company might have minimal current profits or even losses, particularly if it's reinvesting in growth. Moreover, when it comes to financing, issuing stocks can be a better option for such companies over issuing bonds or taking loans, as it avoids the obligation of regular interest payments. Eventually, as a company becomes established and information about its performance and strategy becomes more widely available, external investors may feel more confident investing without in-depth personal knowledge of the company's managers.