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Aswath Damodaran

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 1 · 15 min

    Discount Rate Myth 4: The Discount Rate is the receptacle for all your hopes and fears

    In this session, the fourth of five on the discount rate myths, I look at how analysts and appraisers use the discount rate as a receptacle for all their hopes and fears. Specifically, they try to lower (raise) discount rates for well managed (badly managed) companies and to raise discount rates to capture any risks that they see on the horizon. The discount rate in a DCF is a blunt instrument and is designed more for carrying continuous, going-concern risk than discrete and estimation risks. Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/DiscountRateMyth4.pdf Blog Post: http://aswathdamodaran.blogspot.com/2016/11/myth-44-ddiscount-rate-is-receptacle.html Learn more about your ad choices. Visit megaphone.fm/adchoices

  • October 1 · 1 hr 24 min

    Session 24: Real Options - Fact and Fantasy

    Note: I was off my game in this session, with a voice that was starting to go after two earlier sessions and I forgot to share the slides until half way through the season (You can use the slides link below...) We started this class by looking at the basic option pricing models. After that, we moved on with an examination of option pricing models, and used real options to examine why the rights to non-viable technology can be valuable and why the values of natural resource companies are affected by both the level and variability of commodity prices . As a cautionary note, you are pushing option pricing models to breaking point when using them to value these options, but the key takeaway is that even if you do not value the options explicitly, understanding that they exist can alter how you behave as a business. It is also true that the information that you will need to value many real options will be accessible only if you work at the pharmaceutical or natural resource company, and consequently, you cannot apply it to your company (project), since you will not have that access. Start of the class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/pvttopublicclosure.pdf Slides: https://pages.stern.nyu.edu/~adamodar/podcasts/valUGspr23/session24slides.pdf Post class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session24Atest.pdf Post class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session24Asoln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

  • October 1 · 12 min

    Discount Rate Myth 3: The Discount Rate cannot change in a DCF!

    In this session, the third of five on discount rate myths, I look at the widely held view that the discount rate in a DCF is a constant. In reality, discount can and should change over the forecast period of a DCF to reflect changes in business, life cycle and profitability that you see in the company that you are valuing. I suggest a simple framework for thinking about how to make these changes. Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/DiscountRateMyth3.pdf Blog Post: http://aswathdamodaran.blogspot.com/2016/11/myth-43-d-cannot-change-over-time-in-dcf.html Learn more about your ad choices. Visit megaphone.fm/adchoices

  • September 30 · 1 hr 1 min

    Session 23: Dividends and Potential Dividends

    In this quiz-shortened session, we started by looking at one good reason for paying dividends, including having an investor base that likes dividends, one iffy reason (dividends as a signal) and one borderline reason (that you can rip of lenders). We then looked at three questions that need to be asked in assessing dividend policy, starting with how much a company can afford to return to stockholders (FCFE), then looking at how much is actually returned in dividends and buybacks. Slides: https://pages.stern.nyu.edu/~adamodar/podcasts/cfspr23/session23slides.pdf Post class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session23test.pdf Post class test solution: https://pages.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session23soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

  • September 30 · 12 min

    Discount Rate Myth 2: It's all about D in a DCF

    In this session, the second of five on discount rate myths, I look at the undue attention that both academics and practitioners pay to discount rates in DCF (as opposed to cash flows) and explore why this might be. I also look at the cross sectional distribution of costs of capital across all companies (in the US and globally) and argue that the range across companies is a tight one. Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/DiscountRateMyth2.pdf Blog Post: http://aswathdamodaran.blogspot.com/2016/11/myth-42-it-all-about-d-in-dcf.html Learn more about your ad choices. Visit megaphone.fm/adchoices

  • September 30 · 55 min

    Session 23: Undeveloped reserves, the option to expand and the option to abandon

    In this quiz-shortened session, In today’s class, we continued with our discussion of real options, starting with an analysis of undeveloped natural resources are options and why the value of natural resource companies are affected by both the level and volatility in the prices of the commodity/natural resource. We followed up with the excitement of being able to add premiums to discounted cash flow valuation, in the option to expand, and concluded with the option to abandon, and how that ties into the benefits of flexibility to companies. Slides: https://www.stern.nyu.edu/~adamodar/podcasts/valspr23/session23slides.pdf Post class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session23test.pdf Post class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session23soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

  • September 30 · 17 min

    Discount Rate Myth 1: If you don't like betas, you cannot do DCF

    In this session (the first of five on discount rate myths in DCF), I look at the notion that modern portfolio theory (and the use of betas to get discount rates) are locked at the hip with DCF and that if you don't like one (usually betas), you have to abandon the other. In reality, DCF is agnostic about what model you use to get your discount rate and I look at alternatives. Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/DiscountRateMyth1.pdf Blog Post: http://aswathdamodaran.blogspot.com/2016/11/myth-41-if-you-don-like-betas-or-modern.html Learn more about your ad choices. Visit megaphone.fm/adchoices

  • September 29 · 54 min

    Session 25: Undeveloped Reserves and Options to Expand and Delay

    In this quiz-shortened session, we continued with our discussion of real options, starting with an analysis of undeveloped natural resources are options and why the value of natural resource companies are affected by both the level and volatility in the prices of the commodity/natural resource. We followed up with the excitement of being able to add premiums to discounted cash flow valuation, in the option to expand, and concluded with the option to abandon, and how that ties into the benefits of flexibility to companies. Slides: https://pages.stern.nyu.edu/~adamodar/podcasts/valUGspr23/session25slides.pdf Post class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session25Atest.pdf Post class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session25Asoln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

  • September 29 · 1 hr 34 min

    Session 14: The Dark Side of Valuation (Young companies)

    In this class, we started on the dark side of valuation, where we value difficult-to-value companies. We started the valuaton of young, growth companies by emphasizing that you will be wrong 100% of the time and that it was okay, because the market is usually even more wrong. I argued that to to value a young company, you have to visualize what you see as success for it and work backwards to get the numbers by year, and adjust this valuation for the likelihood that the company will not make it. We then moved on to companies in transition and how you can arrive at two values for these companies: a status quo value and a changed-management value and how you have to take an expected value. We will continue on the dark side on Wednesday, starting with declining companies and moving through companies in different sectors. Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/dcfvaltests2.pdf Slides: http://www.stern.nyu.edu/~adamodar/podcasts/valfall16/valsession14.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session14Btest.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session14Bsoln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

  • September 28 · 1 hr 30 min

    Session 24: Equity as an Option and Acquirers' Anonymous

    We started this class by looking at equity as an option to liquidate a firm, and the insights that emerge from it before turning our attention to acquisitions. Acquisitions are exciting and fun to be part of but they are not great value creators and in today's sessions, I tried to look at some of the reasons. While the mechanical reasons, using the wrong discount rate or valuing synergy & control right, are relatively easy to fix, the underlying problems of hubris, ego and over confidence are much more difficult to navigate. There are ways to succeed, though, and that is to go where the odds are best: small targets, preferably privately held or subsidiaries of public companies, with cost cutting as your primary synergy benefit. If you get a chance, take a look at a big M&A deal and see if you can break it down into its components. I briefly mentioned the InBev/SABMiller merger in class but if you want something more extensive, I am going to offer you the blog post that I did on it when it happened: http://aswathdamodaran.blogspot.com/2015/10/winning-at-losers-game-control-synergy.html If you look towards the bottom on the post, you will see a YouTube video on the merger. https://youtu.be/WAiPxHFFHOQ I go through the process of valuing control and synergy in a merger, and even if you don’t agree with my assumptions, the framework can still be useful. Slides: https://www.stern.nyu.edu/~adamodar/podcasts/valspr23/session24slides.pdf Post class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session24test.pdf Post class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session24soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

  • September 28 · 1 hr 34 min

    Session 13: Story Changes and First DCFs

    In this class, we started with a quick review of narrative changes, shifts and breaks and how earnings reports, in particular, can alter your narrative for a company. Since many of you will be dealing with earnings reports in the next couple of weeks, I thought you may find these two posts of interest in how narratives shift, and with them, values: Reacting to Earnings Reports: http://aswathdamodaran.blogspot.com/2014/08/reacting-to-earnings-reports-lets-get.html Narrative Resets: http://aswathdamodaran.blogspot.com/2015/08/narrative-resets-revisiting-tech-trio.html We started with three conventional valuations, one of Con Ed, another of 3M and the third of the S&P 500. Next week, things get interesting! Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/dcfintro.pdf Slides: http://www.stern.nyu.edu/~adamodar/podcasts/valfall16/valsession13.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session13Atest.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session13Asoln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

  • September 28 · 1 hr 52 min

    Session 26: Equity as an Option and Acquirers' Anonymous

    We started the session by looking at how allow us to value financial flexibility and equity in distressed companies, and then moved on to acquisitions. Acquisitions are exciting and fun to be part of but they are not great value creators and in today's sessions, I tried to look at some of the reasons. While the mechanical reasons, using the wrong discount rate or valuing synergy & control right, are relatively easy to fix, the underlying problems of hubris, ego and over confidence are much more difficult to navigate. There are ways to succeed, though, and that is to go where the odds are best: small targets, preferably privately held or subsidiaries of public companies, with cost cutting as your primary synergy benefit. If you get a chance, take a look at a big M&A deal and see if you can break it down into its components. I briefly mentioned the InBev/SABMiller merger in class but if you want something more extensive, I am going to offer you the blog post that I did on it when it happened: http://aswathdamodaran.blogspot.com/2015/10/winning-at-losers-game-control-synergy.html I go through the process of valuing control and synergy in a merger, and even if you don’t agree with my assumptions, the framework can still be useful. Slides: https://pages.stern.nyu.edu/~adamodar/podcasts/valUGspr23/session26slides.pdf Post class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session26Atest.pdf Post class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session26Asoln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

  • September 28 · 1 hr 34 min

    Session 12: Last Loose Ends and Narrative and Numbers

    Today, we put the last three loose ends to rest. First, well looked at complex businesses and how to incorporate our concerns into value. The, we went back and looked at defining debt. While we used a narrow definition of debt, when computing cost of capital, we argued for using a broader definition of debt, when subtracting from firm value to get to equity value. Next, we talked about how best to deal with both currently outstanding employee options and potential options grants in the future. With the former, we argued for using an option pricing model to value the options and netting that value out of equity value, before dividing by the number of shares outstanding. With the latter, we suggested incorporating the expected cost into the operating expenses, thus lowering future earnings and cash flows. If you are still a little shaky on why stock-based compensation should not be added back as a non-cash expense, please read this post: http://aswathdamodaran.blogspot.com/2014/02/stock-based-employee-compensation-value.html We then started on the discussion of numbers and narratives, i.e., the process of connecting stories to valuations and used Uber as an example. If you are interested in reading more about this process, try this blog post: http://aswathdamodaran.blogspot.com/2014/06/numbers-and-narrative-modeling-story.html Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/looseends2.pdf Slides: http://www.stern.nyu.edu/~adamodar/podcasts/valfall16/valsession12.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session12test.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session12soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

  • September 27 · 1 hr 33 min

    Session 25: Valuation, the final frontiers!

    In today’s session, we continued on the question of how best to value a company by first looking at the four key components of value - cash flows from existing investments, growth in the future, discount rates and the terminal value. With cash flows, we noted the contrast between cash flows to equity and cash flows to the firm, with the former being after debt payments and the latter before. With discount rates, we argued that the same discount rates that we computed for investment hurdle rates can be used in valuation, with the caveat that these discount rates will change over time, as a company changes. While you can adjust betas, costs of debt and debt ratios, a simpler way to target a cost of capital in stable growth is to look at the median cost of capital for companies. The median cost of capital for a global company now is about 9.6%, in US dollar terms. With growth, the key is recognition that growth comes from what companies do in terms on how much they reinvest and how well, rather than from outside sources. Finally, for terminal value, I argued that the growth rate in perpetuity has to be less than or equal to the risk free rate. Since you will be valuing companies in different stages in the life cycle, I would like you to use the spreadsheet linked below: http://www.stern.nyu.edu/~adamodar/pc/fcffsimpleginzu.xlsx As you can see, the valuation is built around revenue growth, operating margins and sales to capital ratios, all variables we spent time talking about in class today. Slides: https://pages.stern.nyu.edu/~adamodar/podcasts/cfspr23/session25slides.pdf Post class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session25test.pdf Post class test solution: https://pages.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session25soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

  • September 27 · 1 hr 27 min

    Session 27: Acquisition End Game and Value Enhancement

    In this class, we continued to make a case against acquisition practices, with transaction multiples, accretion and defensive deals all under fire, before looking at the narrow pathways to generating value from acquisitions (go small, buy private, focus on cost synergies). We then started our discussion of value enhancement, by drawing a contrast between price and value enhancement. With value enhancement, we broke down value change into its component parts: changing cash flows from existing assets, changing growth rates by either reinvesting more or better, lengthening your growth period by creating or augmenting competitive advantages and lowering your cost of capital. We then used this framework to compute an expected value of control as a the product of the probability of changing the way a company is run and the value increase from that change (optimal - status quo value). Start of the class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/valenh.pdf Slides: https://pages.stern.nyu.edu/~adamodar/podcasts/valUGspr23/session27slides.pdf Post class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session27Atest.pdf Post class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session27Asoln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

  • September 27 · 1 hr 34 min

    Session 10: Growth Estimates and Terminal Value

    We started today’s class by talking about estimating sustainable growth in all its forms, from per share equity to operating income and closed the growth section by looking at the most general way of estimating cash flows, starting with revenue growth, moving to operating margins and ending with reinvestment. The heart of today's class, though, was the discussion of terminal value. We began by ruling out using multiples to get terminal values, at least in the context of intrinsic value. To keep terminal values in check, you have to follow four basic rules/principles: 1. Constrain your terminal growth rate to be less than or equal to your riskfree rate (which is a proxy for long term growth in the economy) 2. Don't wait too long to put your company into stable growth (and try not to push past 10 years) 3. The key input in your terminal value computation is your return on capital (and excess return assumption). If your return on capital = cost of capital, your terminal growth rate does not add any value. 4. Give your company the characteristics of a stable growth company in terms of excess returns and cost of capital. Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/termvalue.pdf Slides: http://www.stern.nyu.edu/~adamodar/podcasts/valfall16/valsession10.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session10test.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session10soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

  • September 26 · 59 min

    Session 9: Analyst Estimates of Growth and Fundamental Growth first steps

    The good news is that the first quiz is over and I will let you know as soon as it is ready to be picked up. If you were able to hang in there mentally and physically, we continued our discussion of growth by first looking at the limitations of analyst estimates of growth and then examining the fundamentals that drive growth. Starting with a very simple algebraic proof that growth in earnings has to come either from new investments or improved efficiency, we looked at how best to estimate growth in three measures of earnings: earnings per share, net income and operating income. With each measure of earnings, the estimation of growth boiled down to answering two questions: (1) How much is this company reinvesting to generating for future growth? (2) How well is it reinvesting? (3) How much growth is added or lost by changes in returns on existing investments? In the next session, we will continue this discussion. No start of the class test Slides: http://www.stern.nyu.edu/~adamodar/podcasts/valfall16/valsession9.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

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