What risks are involved in a payday loan
Most investment valuations rely partly on estimates of future returns (or future profits). The risk that future returns will not materialise will be greater with some investments than in others. For example, amongst the less risky investments is a cash deposit in a high street bank with a fixed interest return for a set period (and with an undertaking to receive the capital back in full at the end of the period). At the other end of the spectrum, you could invest in shares in a speculative gold mining business, where there is no certainty that you will receive any dividend or income (or, indeed, get your capital back).
The former investment will offer to provide a lower rate of return because it provides a relatively risk-free opportunity both in terms of income and capital. The latter has to offer you a much higher possible rate of return to compensate you for (or, if you like, to tempt you with) the much higher risk involved in both its income earning potential and certainty of a capital return.
Applying this theory to private businesses, it is obvious that some are more risky than others. For example, compare the purchase of a mobile phone shop on a high street (that has a month-to-month lease, and where competitors can open at any time and where technology is changing rapidly), with purchasing an old-established news agency (that is the only one on the high street and has a long lease). Assuming that both businesses have the same current annual profit and the same tangible net asset value, typically the value of the mobile phone shop would be less than the value of the news agency