D’Amore-McKim School of Business faculty and business expers John Bai and Alvaro Cuervo-Cazurra share the methodologies of measuring the ultra-rich

by dwrighting
Originally Published at News@Northeastern by Tanner Stening

Elon Musk

On the race to become the first trillionaire, some think Elon Musk could come out ahead if Tesla’s self-driving vehicle technology powered by artificial intelligence proves to be successful.

Measuring a person’s net worth isn’t a measure of income, which, in financial terms, is part of their cash flow. Rather, it’s a ballparked value of their assets minus liabilities, says Alvaro Cuervo-Cazurra, professor of international business strategy at Northeastern.

The billionaires identified by Forbes “have not ‘earned’ the money in the sense of income, which is the money one gains over a period of time, usually a year, such as a salary,” Cuervo-Cazurra says. “Wealth is a measure of the value assets they own, typically a share of large firms whose value increases over the year.”

The value of a firm is a measure of the “expected value” that the company will generate in the future, he says.

Bai notes that the arrival of the world’s first trillionaire only further underscores the need to address growing inequality.

“If you think about it, we want to grow the pie first, and then split it more evenly,” Bai says. “The emergence of a trillionaire already tells us that we’ve grown the pie big enough. It’s now time to think about how to divide the pie a little more equitably, or risk more social instability.”