Uploaded March 2025 | Updated September 2026, 1 week ago
In this class, we continued discussing companies on the dark side of valuation. First, we talked about valuing declining and emerging market companies, and the challenges we face with each, before turning our attention to financial service firms For decades, we have valued banks using the dividend discount model, simply because getting cash flows is so difficult, but that approach is built on trusting management at banks to behave sensibly (paying out what they can afford to in dividends) and regulators to do the same. For me, that trust was breached in 2008, and I present a way of estimating FCFE for a bank, using investment in regulatory capital as my stand in for reinvestment. In the first session after the break, we will wrap up the valuation section and start on pricing. If you are interested in reading more about valuing financial service companies, try this link:
papers.ssrn.com/sol3/papers.cfm?abstract_id=1798578
Start of the class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/dcfvaltests3.pdf
Slides: nyu.box.com/s/wnt6f0nxmtmu5knx30idhvzqpn9cfqhi
Post class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session17Dtest.pdf
Post class solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session17Dsoln.pdf
In this class, we continued discussing companies on the dark side of valuation. First, we talked about valuing declining and emerging market companies, and the challenges we face with each, before turning our attention to financial service firms For decades, we have valued banks using the dividend discount model, simply because getting cash flows is so difficult, but that approach is built on trusting management at banks to behave sensibly (paying out what they can afford to in dividends) and regulators to do the same. For me, that trust was breached in 2008, and I present a way of estimating FCFE for a bank, using investment in regulatory capital as my stand in for reinvestment. In the first session after the break, we will wrap up the valuation section and start on pricing. If you are interested in reading more about valuing financial service companies, try this link:
papers.ssrn.com/sol3/papers.cfm?abstract_id=1798578
Start of the class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/dcfvaltests3.pdf
Slides: nyu.box.com/s/wnt6f0nxmtmu5knx30idhvzqpn9cfqhi
Post class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session17Dtest.pdf
Post class solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session17Dsoln.pdf
