6.6 M&M and Pizza
One of the great 20th-century philosophers was a former baseball player named Yogi Berra.
One day, Mr. Berra walked into his favorite pizza shop in New Jersey and ordered a whole pie for himself. The waiter asked him, “How many slices would you like me to cut the pie into – four or the standard eight?”
Without pausing, Mr. Berra replied, “Four. I don’t think I can finish eight.”
At the same time, Dr. Franco Modigliani went into his favorite kosher pizzeria in New York. He too ordered a whole pie for himself. The waiter asked him: “How many slices would you like me to cut the pie into – four or the standard eight?”
Without pausing, Dr. Modigliani replied, “It doesn’t matter how you slice the pie; it’s all the same.”
It is unknown whether Mr. Berra and Dr. Modigliani ever met or spoke; perhaps they could have ordered one pizza to share – four slices each.
The arrows signify varying possible amounts of debt. It doesn’t matter how much leverage the corporation uses, how the pie is sliced, it is assets, EBIT, and ROA that determine Corporate Value.
Every man, wherever he goes, is encompassed by a cloud of comforting convictions, which move with him like flies on a summer day.
Bertrand Russell
Skeptical Essays (1938)