BusinessEntrepreneurshipEducation

Aswath Damodaran

I teach corporate finance, valuation and investment philosophies at the Stern School of Business at New York University. I have online versions of all three courses here, as well as other finance-related videos.
1. The Corporate Finance Online playlist has an introductory video and 36 sessions that cover all of corporate finance (at least as I see it).
2. The Valuation playlist has 25 sessions that cover valuation approaches, issues and questions.
3. The Investment Philosophies playlist has sessions that cover different investment philosophies.
4. The Accounting and Statistics playlists reflect my quirky and unorthodox introductions to two disciplines that are critical to my valuation and corporate finance classes.
5. The Blog Posts playlist has sessions that go wit my blog posts and reflect my standing as a dabbler, rather than expert, in all things finance-related.
If you need the supporting material for any of the classes, check the links below.

Links:
Corporate finance materials: http://www.stern.nyu.edu/~adamodar/New_Home_Page/corpfin.html
Valuation materials: http://www.stern.nyu.edu/~adamodar/New_Home_Page/equity.html
Investment Philosophies: http://www.stern.nyu.edu/~adamodar/New_Home_Page/invphil.htm
Books: http://www.stern.nyu.edu/~adamodar/New_Home_Page/public.htm
My website: http://www.damodaran.com

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October 19 · 1 hr 28 min
Session 7: Cost of Capital Closure and First Steps on Cash Flows
In today’s class, we started with computing debt ratios for companies and how to deal with hybrid securities.. If you are interested in getting updated default spreads (on the cheap or free), try the Federal Reserve site in St. Louis: https://fred.stlouisfed.org/categories/32297 These are spreads on indices created by rating, updated daily. Neat, right? We then moved on to getting the base year's earnings right and explored several issues: 1. To get updated numbers, you should be using either trailing 12 month numbers or complete the current year with forecasted numbers. In either case, your objective should be to get the most updated numbers you can for each input rather than be consistent about timing. 2. To clean up earnings, you have to correct accounting two biggest problems: the treatment of operating leases as operating (instead of financial) expenses and the categorization of R&D as operating (instead of capital) expenses. The biggest reason for making these corrections is to get a better sense of how much capital has been invested in the business and how much return this capital is generating. Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/cftests.pdf Slides: http://www.stern.nyu.edu/~adamodar/podcasts/valUGspr17/session7.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session7test.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session7soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices
October 19 · 2 hr 1 min
Session 8: Free Cash Flows to Firm and Equity
We continued our discussion of cash flows, by first putting to rest some final issues on earnings, including the tax rate to use in computing after-tax cash flows and dealing with money losing companies. In the process, we did look at what to do about accounting fraud, and while the answer is not much, there may be a role for forensic accounting. To be honest, most forensic accounting books are designed for valuation morticians, but here are a couple that you may find useful: http://www.amazon.com/Financial-Shenanigans-Accounting-Gimmicks-Reports/dp/0071703071/ref=pd_sim_b_8 http://www.amazon.com/Creative-Cash-Flow-Reporting-Sustainable/dp/0471469181/ref=pd_sim_b_2 We then moved on to examine broad questions about what to include in capital expenditures and working capital, before putting the cash flow topic to rest by working out debt cash flows and cash flows to equity. If you are interested, you may find this post that I had on free cash flows useful (with Microsoft as my case study): https://aswathdamodaran.blogspot.com/2022/10/earnings-and-cash-flows-primer-on-free.html Start of the class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/cftests2.pdf Slides: https://www.stern.nyu.edu/~adamodar/podcasts/valspr23/session8slides.pdf Post class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session8test.pdf Post class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session8soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices
October 19 · 1 hr 33 min
Session 5: Risk and Return Models and The Marginal Investor
In this session, we address the question of what risks get rewarded and which ones do not, by looking diversifiable versus non-diversifiable risk. The best way to understand diversifiable and non-diversifiable risk is to take a company and consider all of the risks that it is exposed to and then categorize these risks into whether they are likely to affect just the company, the company and a few competitors, the entire sector or the overall market. The marginal investor, if diversified, cares and prices in only the last type of risk. In the last part of the class, we introduced the notion of a risk free investment and how to measure the risk free rate. Slides: http://www.stern.nyu.edu/~adamodar/podcasts/cfspr17/session5.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session5test.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session5soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices
October 18 · 1 hr 27 min
Session 10: FCFE across the life cycle and Growth Rate Estimation
In this session, we started by completing our discussion of FCFE and how it varies over a corporate life cycle, and then looked at three approaches to estimating growth - a historical growth rate, where you look at past growth, outsourcing growth to analysts or managers and sustainable growth, where you tie growth to how much a company is reinvesting and how well it is reinvesting. Ultimately, you have to find the right mix of historical data, industry trends and your assessment of the company in forecasting growth, and letting uncertainty stop you is not an option. Start of the class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/growthrate.pdf Slides: https://pages.stern.nyu.edu/~adamodar/podcasts/valUGspr23/session10slides.pdf Post class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session10Atest.pdf Post class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session10Asoln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices
October 18 · 19 min
The Greatest Cash Machine in History: An Analysis of Apple (February 2017)
Apple is one of the great cash machines of all time, a company that has returned more cash ($183 billion) over the last five years than any other company in the world, while simultaneously building a cash balance of almost $250 billion. In a quarterly ritual that I started in 2010, I value Apple after its most recent earnings report (end of January 2017) and find it fully priced after an extended period where it was under valued (and in my portfolio). That is, though, based on my story and you are free to come up with yours and use my spreadsheet to convert to value. Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/AppleCashMachine.pdf Blog Post: http://aswathdamodaran.blogspot.com/2017/02/apple-greatest-cash-machine-in-history.html Valuation Spreadsheet: http://www.stern.nyu.edu/~adamodar/pc/blog/AppleFeb2017.xls Learn more about your ad choices. Visit megaphone.fm/adchoices
October 18 · 1 hr 28 min
Session 9: Betas - Drivers and Determinants
In this class, we looked past regression betas at how the choices companies make about the businesses they enter can determine their betas.. Summarizing the class, here is what we listed as the three determinants of betas: 1. Betas are determined in large part by the nature of your business. While I am not an expert on strategy, marketing or productions, decisions that you make in those disciplines can affect your beta. Thus, your decision to go for a price leader as opposed to a cost leader (I hope I am getting my erminology right) or build up a brand name has implications for your beta. As some of you probably realized today, the discussion about whether your product or service is discretionary is tied to the elasticity of its demand (an Econ 101 concept that turns out to have value)... Products and services with elastic demand should have higher betas than products with inelastic demand. And if you do get a chance, try to make that walk down Fifth Avenue... 2. Your cost structure matters. The more fixed costs you have as a firm, the more sensitive your operating income becomes to changes in your revenues. 3. Financial leverage: When you borrow money, you create a fixed cost (interest expenses) that makes your equity earnings more volatile. Thus, the equity beta in a safe business can be outlandishly high if has lots of debt. The levered beta equation we went through is a staple for this class and we will revisit it again and again. So, start getting comfortable with it. I know that the last part of this class was a grind with numbers building on top of numbers. In specific, we looked at how to estimate the beta for not only a company but its individual businesses by building up to a beta, rather than trusting a single regression. With Disney, we estimated a beta for each of the five businesses it was in, a collective beta for Disney's operating businesses and a beta for Disney as a company (including its cash). Slides: https://pages.stern.nyu.edu/~adamodar/podcasts/cfspr23/session9slides.pdf Post class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session9atest.pdf Post class test solution: https://pages.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session9asoln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices
October 18 · 1 hr 28 min
Session 6: Measuring Relative Risk (Equity) and Cost of Debt
In today’s class, we started by reviewing the pitfalls of regression betas and went on to talk about bottom up betas, focusing on defining comparable firms and expanding the sample. I did make a big deal about bottom up betas, but may have still not convinced you or left you hazy about some of the details. If so, I thought it might be simpler to just send you a document that I put together on the top ten questions that you may have or get asked about bottom up betas. I think it covers pretty much all of the mechanics of the estimation process, but I am sure that I have missed a few things. http://www.stern.nyu.edu/~adamodar/New_Home_Page/TenQs/TenQsBottomupBetas.htm We then started on the cost of debt, starting with a definition of the cost of debt as a long term, current cost of borrowing and laying out a procedure for estimating this cost. Next session, we will complete the cost of capital discussion and move on to cash flows. Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/beta&wacc.pdf Slides: http://www.stern.nyu.edu/~adamodar/podcasts/valUGspr17/session6.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session6test.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session6soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices
October 18 · 53 min
Session 9: Growth Rates
(The first 35 minutes of class were taken up by the first quiz and that time was not recorded. The rest of the class was recorded.) In the session, which occurred after the quiz i, we started on our assessment of growth rates, starting with historical growth rates, before looking at analysts estimates of growth and why they do not carry more predictive power (given that analysts often are immersed in company-specific knowledge and have access to management). We then looked at tying growth to two fundamental questions: (1) how much companies reinvest and (2) how well. The way we measure these can vary depending on whether you look at earnings per share, net income or operating income Slides: https://www.stern.nyu.edu/~adamodar/podcasts/valspr23/session9slides.pdf Post class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session9test.pdf Post class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session9soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices
October 18 · 1 hr 33 min
Session 4: Closing the books on the objective function and Opening the one on Risk
The objective function matters, and there are no perfect objectives. That is the message of the last two classes. Once you have absorbed that, I am willing to accept the fact that you still don't quite buy into the "maximize value" objective. That is fine and I would like you to keep thinking about a better alternative with three caveats. First, you cannot cop out and give me multiple objectives - I too would like to maximize stockholder wealth, maximize customer satisfaction, maximize social welfare and employee benefits at the same time but it is just not doable. Second, your objective function has to be measurable. In other words, if you define your objective as maximizing the social good, how would you measure social good? Third, take your objective (and the measurement device you have developed) and ask yourself a cynical question: How might managers game this system for maximum benefit, while hurting you as an owner? In the long term, you may almost guarantee that this will happen. In the last part of the class, I defined risk and started on what goes into a good risk and return model. Slides: http://www.stern.nyu.edu/~adamodar/podcasts/cfspr17/session4.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session4test.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session4soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices
October 17 · 51 min
Session 11: Growth generalized!
The first 35 minutes of this class were taken up by the first quiz. In the shortened session after the quiz, which occurred after the quiz i, we started on our assessment of growth, especially when returns on capital and margins are changing. We focused on the three elements that go into the story/numbers for a company: its revenue growth rate, determined by the size of the market and extent of market share, its operating margin driven by unit economics and competitions and its investment efficiency. The key as I noted is to tie your inputs on these not only to a story that you have for the company but one that makes internal sense. Slides: https://pages.stern.nyu.edu/~adamodar/podcasts/valUGspr23/session11slides.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices
October 17 · 51 min
Session 10: Closure on Cost of Equity
(Quiz in first 30 minutes) We started class today by looking at the process of estimating betas for the remaining public companies in the mix, with financial service companies being treated a little differently, because debt is impossible to nail down, and levering and unlevering betas is tough to do. We also examined how to estimate the cost of equity of a private company, and why it may be higher than an otherwise equivalent public company. Slides: https://pages.stern.nyu.edu/~adamodar/podcasts/cfspr23/session10slides.pdf Post class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session10test.pdf Post class test solution: https://pages.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session10soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices
October 17 · 1 hr 33 min
Session 3: Managers, Markets and Morality
This session extended the discussion of everything that can wrong in the real world. Lenders, left unprotected, will be exploited. Information can be noisy and markets can be irrational. Social costs can be large. Relating back to class, I have a couple of items on the agenda and neither requires extensive reading or research. I would like you to think about market efficiency without any preconceptions. You may believe that markets are short term, volatile and over react, but I would like you to consider the basis of these beliefs. Is it because you have anecdotal evidence or because you have been told it is so or is it based upon something more concrete? i also want to think about how managers in publicly traded companies can position themselves best to consider the public good, without being charitable with other people's money, as a precursor to the next class. We have spent a couple of sessions being negative - managers are craven, markets are noisy and bondholders get ripped off. In the next session, we will take a more prescriptive look at what we should be doing in this very imperfect world. This session extended the discussion of everything that can wrong in the real world. Lenders, left unprotected, will be exploited. Information can be noisy and markets can be irrational. Social costs can be large. Relating back to class, I have a couple of items on the agenda and neither requires extensive reading or research. I would like you to think about market efficiency without any preconceptions. You may believe that markets are short term, volatile and over react, but I would like you to consider the basis of these beliefs. Is it because you have anecdotal evidence or because you have been told it is so or is it based upon something more concrete? i also want to think about how managers in publicly traded companies can position themselves best to consider the public good, without being charitable with other people's money, as a precursor to the next class. We have spent a couple of sessions being negative - managers are craven, markets are noisy and bondholders get ripped off. In the next session, we will take a more prescriptive look at what we should be doing in this very imperfect world. Slides: http://www.stern.nyu.edu/~adamodar/podcasts/cfspr17/session3.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session3test.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session3soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices
October 17 · 1 hr 29 min
Session 10: Growth and Terminal Value
If this session seems to pass by in a blur, it is because we covered a lot during the class. We started with a continuation of our discussion of fundamental growth rates, starting with non-cash net income and then moving on to operating income. We then looked at the more general question of how to estimate growth and cash flows, when margins are changing. In particular, I used Airbnb’s IPO valuation as an illustrative example. If you are interested in getting more detail on my reasoning, you can try this post that I had at the time of the IPO: https://aswathdamodaran.blogspot.com/2020/12/the-sharing-economy-come-home-ipo-of.html In the second half of the class, we looked at the elephant in the DCF room, the terminal value, and laid out broad constraints that keep it in check. In furtherance of that discussion, I would like you take a look at five posts that I had on terminal value on my blog that cover the spectrum of questions related to it: http://aswathdamodaran.blogspot.com/2016/11/myth-51-if-you-don-believe-in-forever.html http://aswathdamodaran.blogspot.com/2016/11/myth-52-as-g-rto-infinity-and-beyond.html http://aswathdamodaran.blogspot.com/2016/11/myth-53-growth-is-good-more-growth-is.html http://aswathdamodaran.blogspot.com/2016/11/myth-54-negative-growth-rates-forever.html Start of the class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/growthrate2.pdf Slides: https://www.stern.nyu.edu/~adamodar/podcasts/valspr23/session10slides.pdf Post class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session10test.pdf Post class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session10soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices
October 17 · 22 min
Data 2017 Update 9: Dividends, Rodney Dangerfield of Corporate Finance
The dividend decision of a firm is akin to harvesting for a farmer, the coming to fruition of all your good decisions and hard work. Rather than being the residual decision (the one made after your investment and financing decisions), in many firms, it is set first and everything else follows. In this session, I look at dividend yields & payouts around the world and the shift towards buybacks happening in the US (and spilling over to the rest of the world). Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/dataupdate9.pdf Blog Post: http://aswathdamodaran.blogspot.com/2017/02/january-2017-data-update-9-dividends.html Data: Dividends by country: http://www.stern.nyu.edu/~adamodar/pc/blog/dividendcountry2017.xlsx Dividends by sector: http://www.stern.nyu.edu/~adamodar/pc/blog/dividendindustry2017.xlsx Learn more about your ad choices. Visit megaphone.fm/adchoices
October 16 · 1 hr 31 min
Session 12: The Tail that wags the Dog? Terminal Value in DCF
In this session, we looked at the elephant in the DCF room, the terminal value, and laid out broad constraints that keep it in check. In furtherance of that discussion, I would like you take a look at five posts that I had on terminal value on my blog that cover the spectrum of questions related to it: http://aswathdamodaran.blogspot.com/2016/11/myth-51-if-you-don-believe-in-forever.html http://aswathdamodaran.blogspot.com/2016/11/myth-52-as-g-rto-infinity-and-beyond.html http://aswathdamodaran.blogspot.com/2016/11/myth-53-growth-is-good-more-growth-is.html http://aswathdamodaran.blogspot.com/2016/11/myth-54-negative-growth-rates-forever.html http://aswathdamodaran.blogspot.com/2016/11/myth-55-terminal-value-ate-my-dcf.html Start of the class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/termvalue.pdf Slides: https://pages.stern.nyu.edu/~adamodar/podcasts/valUGspr23/session12slides.pdf Post class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session12Btest.pdf Post class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session12Bsoln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices
October 16 · 1 hr 28 min
Session 4: Risk free Rates (continued) and first steps on ERP
We started the class by completing the discussion of risk free rates, exploring why risk free rates vary across currencies and what to do about really low or negative risk free rates. The blog post below captures my thoughts on negative risk free rates: http://aswathdamodaran.blogspot.com/2016/03/negative-interest-rates-unreal.html We are about halfway through the discussion of equity risk premiums but the contours of the discussion should be clear. a. Historical equity risk premiums are not only backward looking but are noisy (have high standard errors). You can the historical return data for the US on my website by going to http://www.stern.nyu.edu/~adamodar/New_Home_Page/data.html Click on current data, and look to the top of the table of downloadable data items. b. Country risk premium: The last few months should be a reminder of why country risk is not diversifiable. As you see markets are volatile around the world, I think you have a rationale for a country risk premium. You can get default spreads for country bonds on my site under updated data. If you are interested in assessing and measuring country risk, to get from default spreads to equity risk premiums, you need two more numbers. The first is the standard deviation for the equity market in the country that you are trying to estimate the premium for. Try the Bloomberg terminal. Find the equity index for the country in question (Bovespa for Brazil, Merval for Argentina etc.) and type in HVT. This should give you the annualized standard deviation in the index - change the default to weekly and use the 100-week standard deviation. Do the same for the country bond in question. The two standard deviations should yield the relative volatility. If you have trouble finding either number, just multiply the default spread by 1.4 to get a rough measure of the country risk premium. If you want my estimates of country risk premiums, check under updated data on my website. The direct link is below: http://www.stern.nyu.edu/~adamodar/pc/datasets/ctryprem.xls You can also see my latest blog post on country risk here: http://aswathdamodaran.blogspot.com/2017/01/january-2017-data-update-4-country-risk.html Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/riskfree.pdf Slides: http://www.stern.nyu.edu/~adamodar/podcasts/valUGspr17/session4.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session4test.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session4soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices
October 16 · 42 min
Data Update 7 for 2023: Dividends, Buybacks and Cashflows
Dividends are residual cash flows, and in a well-functioning business should represent the last step in a sequence that starts with investing choices, with financing choices occurring concurrently and ending with dividends. In practice, though, there are companies that allow dividend policy to climb to the top of the sequence skewing investing and financing decisions. In this post, I provide a process for estimating potential dividends, and talk about how those potential dividends change over the life cycle. I then look at how buybacks have surged as the preferred option for many companies, and not just in the US, and argue that it is the flexibility of buybacks (being able to drastically change already announced buybacks) that makes them so attractive to businesses, concerned about earnings predictability. I end with a discussion of the fictions around buybacks - that they can add or destroy value (they cannot... they redistributed value), that they are being funded with debt (firms that buyback stocks have far lighter debt loads than first that do not), that they are bad for the economy (not true, since the buyback cash finds it way back into other companies that reinvest it) and that it is unfair to other stakeholders. Buffett's description of buyback critics as economic illiterates might be too kind, since much of the criticism comes from a mixture of ignorance and idealogical zeal. Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/DataUpdate7for2023.pdf Blog Post: https://aswathdamodaran.blogspot.com/2023/03/data-update-7-for-2023-dividends.html Learn more about your ad choices. Visit megaphone.fm/adchoices
October 16 · 14 min
Data 2017 Update 8: Debt, the Dark and Light Side!
Debt has a light side (tax benefits, added discipline) and a dark side (distress and agency costs) and lots of distractions. In this session, I look at how that trade off plays in debt ratios across the globe and across sections. (Sorry about the typos on the slides in the video, but fixed on the slides below) Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/dataupdate8.pdf Blog post: http://aswathdamodaran.blogspot.com/2017/02/january-2017-data-update-8-dark-and.html Data: 1. Debt, by country: http://www.stern.nyu.edu/~adamodar/pc/blog/debtcountry2017.xlsx 2. Debt, by industry: http://www.stern.nyu.edu/~adamodar/pc/blog/debtindustry2017.xls Learn more about your ad choices. Visit megaphone.fm/adchoices
October 16 · 1 hr 38 min
Session 11: Terminal Value Closure and First steps on the Loose Ends
In this class, we started by tying up loose ends on terminal value, with the dangers of waiting too long to put your company into stable growth and the importance of long term excess returns in determining terminal value. We then looked at building a DCF model, and how your choices of which cash flows to discount, the discount rate to use and the growth rates/patterns for a business have to be tailored to the firms. In the second half of the class, we talked about the loose ends in valuation, i.e., all the things you do after you have discounted cash flows back at the discount rate and why they matter. We started with cash, the simplest and most direct of all assets to value, and talked about why investors may attach a premium or discount to the cash balance of a company, arguing that discounts reflect a lack of trust in management. I mentioned a paper that looks at how the market discriminates across companies, when it comes to valuing cash balances. We then moved on to cross holdings, and why they are difficult to incorporate into value, and some approximations that you can try, when valuing them. In the next session, after the break, we will continue with the loose ends discussion. Start of the class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/termvalue.pdf Slides: https://www.stern.nyu.edu/~adamodar/podcasts/valspr23/session11slides.pdf Post class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session11test.pdf Post class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session11soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices
October 15 · 1 hr 29 min
Session 3: DCF Overview and First Steps on Discount Rates
This class started with a look at a major investment banking valuation of a target company in an acquisition and why having a big name on a valuation does not always mean that a valuation follows first principles. After setting the table for the key inputs that drive value - cash flows, growth, risk, we looked at the process for estimating the cost of equity in a valuation. The key concept is that of a "marginal" investor, who is diversified and looking at risk through that investor's eyes. We spent the rest of the session talking about what should be (but no longer is) the simplest input into the process: the risk free rate. Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/kennecott.pdf Slides: http://www.stern.nyu.edu/~adamodar/podcasts/valUGspr17/session3.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session3test.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session3soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

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