Kanye No Longer a Billionaire
The word is out. Kanye West, who was once married to Kim Kardashian, the OG influencer is no longer a billionaire. But how did that happen? Did someone suck a billion dollars or so out of Kanye’s bank account?
Kanye had deals with Adidas, Gap, Louis Vuitton, and Balenciaga among others to sell Yeezy his own brand. While we don’t know the exact number, the companies split their profits with Kanye West. However these deals probably do not come close to a billion dollars. Most likely they were in the hundreds of millions of dollars per year. So how does that make Kanye a billionaire?
If you make $50,000 a year, your net worth is $50,000 minus whatever taxes you might owe. However, if you have a business that sells $50,000 worth of merchandise, depending on what business that is, you could have a business worth $500,000! How did we get to a value that was ten times what we made?
It’s assumed that because you’ve sold $50,000 worth of goods and services this year, you probably will sell that much the following year or at least somewhere in that ball park or higher. Depending on what the market sees as the growth for your business, you might be able to multiply your earnings by 10, 20, or sometimes even 30 if the market really feels like you have a good business in a good industry.
Kanye’s business and brand Yeezy was growing. It was hot and while we don’t know the specifics of the deal, it got him into the billionaire stratosphere. If Adidas sold $500 million of Yeezy’s, and split that with his company, say $250 million goes to the Yeezy brand.
If Kanye owns 50% of his company that means Kanye’s take is worth $125 million. However, he is not taking that money out. Most likely he will need to plow that back into the company. (We are simplifying because of course there are expenses and costs of goods sold). But if Yeezy is worth $100 million per year and Kanye owns 50%, we can see how it is easily worth at least $1 billion at a 10 times multiplier.
Price Earnings Ratio
The multiplier, also known as a P/E ratio, is not an exact science. It’s formula is simply taking the value of the company (the P or the Share price) divided by the earnings of the company (the E). If the company is not publicly traded, then analysts can take “comparable” companies to see what their P/E ratio is and apply it to Yeezy. P/E for fashion brands due to the fickleness of consumers and its high costs are about 10. For comparison, highly scalable companies like technology companies can have a P/E of 30.
So what does this mean for you? Learning about finance is great, but it’s not like you are going to open up a spreadsheet and figure out if Apple is over or under valued (or maybe you are!). Well, think about this as an influencer if you sell are responsible for some sales and a company pays you $50,000, you have earned $50,000. However, if you sell $50,000 of merchandise in your own brand, you now have a $500,000 company.
Even if you aren’t good at math, you know that 500 is greater than 50. And depending on what business line you are in that number could be higher for you. The lesson here: Stop working for wages and start a company, you’ll earn ten times the money and make money when you sleep.
Do you have a company that you are starting? Drop us a line and let us know if you agree with our calculations!