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Wednesday, May 26, 2021 8:34:51 PM
It appears...
Appearances can often be ephemeral and only made that much more so when showing a false correlation, as does that of Elite's share price, vis-a-vis, profitability v. not.
Many times, research reveals a trend or a connection between two things. Sometimes, that trend or connection is meaningful and other times it is not. In order to be able to tell the difference between a false correlation and a matter of cause-and-effect, someone engaging in critical thinking must fall back on the scientific method and look for causality (remember, I just talked about that).
For example, while there is a correlation between the numbers offered, there is no causation. In neither case, as the evidence provided makes clear, is the share price caused by Elite's profitability or non-profitability. However, while the profitability of a company and its valuation are highly correlated statistically, it is important to note that the valuation is based on business fundamentals and not the share price.
The bottom line...the share price may be correlated to the valuation of a firm...but it is not the cause of its valuation. The cause of the valuation of Elite is its business fundamentals/financials as seen in its debt and equity ratios, not the share price.
I hope this clears up the confusion.
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