Big Deal but is it a good deal? The ABInBev Acquisition of SABMiller Aswath Damodaran 2024-10-23 | Big Deal but is it a good deal? The ABInBev Acquisition of SABMiller
Facebook (Meta) Lesson 3: Tell me a story! Aswath Damodaran 2022-11-15 | A good valuation is a bridge between stories and numbers, and Facebook's story through much of the decade has been simple and compelling, built around billions of intense users who share data about themselves, with that data being used to deliver focused advertising. That story has delivered operating results and allowed the company's market capitalization to surge over between 2012 to 2021. That story is running out of steam, partly because of the backlash on the privacy front and partly because the online ad market is leveling off. Facebook, faced with a choice, has decided to bet big on the Metaverse, but investors seem unimpressed, pricing the company on the presumption that the investment will not pay off. During the session, I argue that Facebook is facing a trust deficit that it can begin to overcome only by telling a business story that justifies the huge investments, with trackers and targets on how it plans to deliver on the story.If you have trouble with downloads, please try switching browsersSlides: https://www.stern.nyu.edu/~adamodar/pdfiles/blog/FBStory.pdfBlog Post: aswathdamodaran.blogspot.com/2022/11/meta-lesson-3-tell-me-story.htmlMetaverse value effect: https://www.stern.nyu.edu/~adamodar/pc/blog/FBMetaverseValue.xlsx
Facebook (Meta) Lesson 2: Accounting Inconsistencies and Consequences Aswath Damodaran 2022-11-10 | In this session, I use Facebook's most recent (and disappointing) quarterly earnings report to talk about accounting inconsistencies in categorizing expenses (into operating, financing and capital) at firms, and how this mis-categorization affects their profitability, return and debt measures. I present templates for correcting for their inconsistencies, and how these corrections can affect the value that we attach to these companies and the pricing of these companies. With Facebook, capitalizing R&D and their Metaverse investments, not only increases operating margins substantially, but also makes it clear that the drop in margins at the company in the last year or two are almost entirely due to Facebook's massive R&D and Metaverse investments. Whether you view that is good or bad depends in large part on whether you trust Facebook (and Zuckerberg) to deliver earnings and growth from the Metaverse, and that mistrust can be attributed to the company's incapacity to explain how the tens of billions of dollars will pay off over time.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/blog/FBAccounting.pdfBlog Post: aswathdamodaran.blogspot.com/2022/11/meta-lesson-2-accounting.html
Facebook (Meta) Lesson 1: Corporate Governance - The What, Why and What now? Aswath Damodaran 2022-11-04 | This has not been a good year for Facebook, as its stock price has plummeted, and its earnings report from last week precipitated a new round of selling and finger-pointing. In this session, I start by putting the news in the most recent earnings report in perspective, but use the reaction to the report to look at bigger issues that affect tech companies. Specifically, I focus on corporate governance, and argue that much of the legislation, research and regulation in the last two decades has focused on the details of board composition and proxy voting minutiae, while giving shareholders the power to change management at the companies that they invest in. I argue that change is needed because managers can be mismatched to the companies they run, use the corporate life cycle to illustrate why these mismatches occur and explain why are more likely to happen at tech companies, with their compressed life cycles. Ironically, these are also the companies where we have acquiesced to being second-class citizens, in terms of voting rights, making change less likely in companies where it is needed the most.Slides (if download does not work, try a different browser): https://www.stern.nyu.edu/~adamodar/pdfiles/blog/FBCorpGov.pdfBlog Post: aswathdamodaran.blogspot.com/2022/11/meta-lesson-1-corporate-governance.html
Free Cash Flow: Back to Basics Aswath Damodaran 2022-10-25 | In every market correction, investors discover old truths, and this one has been no different. Not only have you seen the conversation shift from scaling up to profitability, but from earnings to cash flows. Managers and investors are suddenly discovering the importance of free cash flow, but as I argue in this session, the definitions of free cash flow range from the self-serving to the delusional. I look at the mechanics of computing free cash flows, to equity and to the firm, and why you may come up with different values depending on whether you are using FCFE to explain what happened in a period, as the base for forecasting future cash flows in intrinsic valuation or as a scalar in pricing. I push back against the notion that positive free cash flows are, by themselves, indicators of company health and note how cash flows evolve as companies age. While free cash flows remain the go-to measure in intrinsic valuation, I don't think that they are good pricing metrics, in most sectors.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/blog/FreeCF.pdfMicrosoft Annual Report for 2021: microsoft.com/investor/reports/ar21/index.html
Uncertainty in Investing and Valuation: What if questions, Scenario Analysis and Simulations Aswath Damodaran 2022-10-24 | Session on Uncertainty for the Motley FoolIt is natural to feel uncertain about your value estimates, once you are done valuing a company, and second guess yourself. In this session, I start with the basic Excel tools you can use to ask what if questions, but then quickly shift away from the spreadsheets to talking about uncertainty in valuation, categorizing that uncertainty and the tools that you can use to deal with uncertainty. With what-if analyses, I talk about deciding which variables to ask questions about and how to create break even tables with multiple variables. Moving on, I address the times when scenario analysis and decisions trees can be useful in dealing with uncertainty. Finally, I look at the power of simulations. In closing, denying the existence of uncertainty or cowering in its presence does not make it go away.(At the start, I had trouble with the Goalseek function in solving for revenue growth. Don't ask me why, but it seems to work with the Solver function to yield a growth rate of 28.46% to get to the current stock price)Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/country/NoiseMotleyFool.pdfPaper on probabilistic approaches:My valuation spreadsheet: https://www.stern.nyu.edu/~adamodar/pc/blog/TeslaWhatIf2022.xlsx(If you have trouble downloading, try switching browsers...)
Sow the wind, Reap the whirlwind: An Inflation Update (September 23, 2022) Aswath Damodaran 2022-09-26 | Inflation has taken center stage, in markets, and in policy makers' minds, for much of 2022. For much of the year, the market has been trying to play catch up with inflation, with expectations running behind actual inflation, and prices adjusting, as a consequence. In this session, I pull together material that you might have already seen in my three earlier sessions this year on inflation, and update the numbers for an eventful summer. In short, expected inflation continues to rise, pushing up interest rates and creating havoc in currency markets, as first order effects. As inflation has risen, risk capital has moved to the sidelines, and stayed there, and risk premiums are up in both stock and bond markets. Taking stock in September 2022, with a recession looming, I value the S&P 500 index, and find it to be valued to reflect a gloomy future. Whether you find stocks a bargain or not will depend, in large part, on whether your views of the future of the economy and how inflation plays out are more upbeat or downbeat than market expectations.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/blog/InflationUpdate.pdfBlog Post: aswathdamodaran.blogspot.com/2022/09/inflation-interest-rates-and-stock.htmlSpreadsheet to value S&P 500: https://www.stern.nyu.edu/~adamodar/pc/blog/S&P500ValueSept23.xlsx
A 2022 Zomato Update: Price, Value and the Gap! Aswath Damodaran 2022-07-27 | I valued Zomato a little over a year ago (on July 21), ahead of its IPO, and estimated a value of ₹41 per share. The market, as it almost does, had other ideas and the stock, which had an offering price of ₹74, soared 51% on the first day of trading and stayed at stratospheric levels for much of 2021, even as earnings reports from the company reported steeper losses. In 2022, the company's stock has come back to earth, and the mood has shifted, partly as a result of macro shifts (increased inflation and a flight of risk capital). The stock which has been dropping all year has seen the bottom fall out in the last few weeks, first in response to a conflicted and questionable investment in Blinkit, and next as the lock-in period for insiders expired, and the stock was priced at close to ₹41 on July 26. While I view this convergence as luck (even a broken clock is right at least twice every day), I updated my valuation for the company incorporating the most recent earnings reports and the macro changes (higher riskfree rates and risk premiums) to yield a value per share of ₹35, with much of the decline due to macro changes. (The attached spreadsheet has a do-it-yourself valuation that you can use to tell your own story and arrive at your own value for Zomato. Good luck!)Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/blog/ZomatoUpdate.pdfBlog Post: aswathdamodaran.blogspot.com/2022/07/a-zomato-2022-update-value-pricing-and.htmlValuation Spreadsheet: https://www.stern.nyu.edu/~adamodar/pc/blog/ZomatoDIY2022.xlsx
Session 12: Valuation Aswath Damodaran 2022-07-26 | In this session, I introduce the first principles of valuation and connect corporate finance decisions to end value.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/execcf/session12.pdf(This is a blast from the past, since these are recordings of a corporate finance class that I taught in the Stern Trium MBA program in January 2016. That said, corporate finance first principles don't magically change over time, and while nothing is timeless, the lessons hold up. The class was a three-day class, with twelve recordings of about an hour and a half each. You can get the entire playlist by going here:youtube.com/playlist?list=PLUkh9m2BorqlDu2zrSN9WZ3xEp3qNgnQj The webpage for the class, with links to additional material is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/webcastexeccf16.htmThe lecture notes for the class are at this link:https://pages.stern.nyu.edu/~adamodar/pdfiles/execs/cf2day2016.pdf)
Session 11: Dividend Policy Aswath Damodaran 2022-07-26 | In this session, I start by looking at the historical trends/practices in dividends, and then use the trade offs to determine how much cash firms should return, and in what form.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/execcf/session11.pdf(This is a blast from the past, since these are recordings of a corporate finance class that I taught in the Stern Trium MBA program in January 2016. That said, corporate finance first principles don't magically change over time, and while nothing is timeless, the lessons hold up. The class was a three-day class, with twelve recordings of about an hour and a half each. You can get the entire playlist by going here:youtube.com/playlist?list=PLUkh9m2BorqlDu2zrSN9WZ3xEp3qNgnQj The webpage for the class, with links to additional material is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/webcastexeccf16.htmThe lecture notes for the class are at this link:https://pages.stern.nyu.edu/~adamodar/pdfiles/execs/cf2day2016.pdf)
Session 9: The Right Financing Mix Aswath Damodaran 2022-07-26 | In this session, I look at the trade offs on using debt, and how the cost of capital can be used as an optimizing tool to determine the right mix of debt and equity for a firm.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/execcf/session9.pdf(This is a blast from the past, since these are recordings of a corporate finance class that I taught in the Stern Trium MBA program in January 2016. That said, corporate finance first principles don't magically change over time, and while nothing is timeless, the lessons hold up. The class was a three-day class, with twelve recordings of about an hour and a half each. You can get the entire playlist by going here:youtube.com/playlist?list=PLUkh9m2BorqlDu2zrSN9WZ3xEp3qNgnQj The webpage for the class, with links to additional material is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/webcastexeccf16.htmThe lecture notes for the class are at this link:https://pages.stern.nyu.edu/~adamodar/pdfiles/execs/cf2day2016.pdf)
Session 8: Measuring Investment Returns Aswath Damodaran 2022-07-26 | In this session, I use a Disney theme park proposed investment to illustrate how to estimate earnings and cash flows for projects, and convert those into measure of investment returns.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/execcf/session8.pdf(This is a blast from the past, since these are recordings of a corporate finance class that I taught in the Stern Trium MBA program in January 2016. That said, corporate finance first principles don't magically change over time, and while nothing is timeless, the lessons hold up. The class was a three-day class, with twelve recordings of about an hour and a half each. You can get the entire playlist by going here:youtube.com/playlist?list=PLUkh9m2BorqlDu2zrSN9WZ3xEp3qNgnQj The webpage for the class, with links to additional material is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/webcastexeccf16.htmThe lecture notes for the class are at this link:https://pages.stern.nyu.edu/~adamodar/pdfiles/execs/cf2day2016.pdf)
Session 7: Costs of Debt and Capital Aswath Damodaran 2022-07-26 | In this session, I look at the cost of debt for a company, and how it is incorporated into a cost of capital. I also open the door to measuring returns on individual projects.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/execcf/session7.pdf(This is a blast from the past, since these are recordings of a corporate finance class that I taught in the Stern Trium MBA program in January 2016. That said, corporate finance first principles don't magically change over time, and while nothing is timeless, the lessons hold up. The class was a three-day class, with twelve recordings of about an hour and a half each. You can get the entire playlist by going here:youtube.com/playlist?list=PLUkh9m2BorqlDu2zrSN9WZ3xEp3qNgnQj The webpage for the class, with links to additional material is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/webcastexeccf16.htmThe lecture notes for the class are at this link:https://pages.stern.nyu.edu/~adamodar/pdfiles/execs/cf2day2016.pdf)
Session 6: Bottom Up Betas Aswath Damodaran 2022-07-26 | In this session, I examine the fundamentals that determine betas, and how using industry averages and correcting for differences in leverage can yield better estimates of betas not only for companies, but their business segments.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/execcf/session6.pdf(This is a blast from the past, since these are recordings of a corporate finance class that I taught in the Stern Trium MBA program in January 2016. That said, corporate finance first principles don't magically change over time, and while nothing is timeless, the lessons hold up. The class was a three-day class, with twelve recordings of about an hour and a half each. You can get the entire playlist by going here:youtube.com/playlist?list=PLUkh9m2BorqlDu2zrSN9WZ3xEp3qNgnQj The webpage for the class, with links to additional material is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/webcastexeccf16.htmThe lecture notes for the class are at this link:https://pages.stern.nyu.edu/~adamodar/pdfiles/execs/cf2day2016.pdf)
Session 5: Betas and Relative Risk Aswath Damodaran 2022-07-26 | In this session, I started with the conventional regression approach to estimating betas and how the regression can yield important details about the firm's past market performance and risk attributes.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/execcf/session5.pdf(This is a blast from the past, since these are recordings of a corporate finance class that I taught in the Stern Trium MBA program in January 2016. That said, corporate finance first principles don't magically change over time, and while nothing is timeless, the lessons hold up. The class was a three-day class, with twelve recordings of about an hour and a half each. You can get the entire playlist by going here:youtube.com/playlist?list=PLUkh9m2BorqlDu2zrSN9WZ3xEp3qNgnQj The webpage for the class, with links to additional material is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/webcastexeccf16.htmThe lecture notes for the class are at this link:https://pages.stern.nyu.edu/~adamodar/pdfiles/execs/cf2day2016.pdf)
Session 4: Risk free Rates and Equity Risk Premiums Aswath Damodaran 2022-07-26 | In this session, I began by going through the project workbook, to make judgments on who the marginal investors in a company are and then talked about how to estimate the risk free rate, before introducing the equity risk premium (with the historical and implied approaches).Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/execcf/session4.pdfProject Workbook: https://www.stern.nyu.edu/~adamodar/pdfiles/execs/projworkbookJan2016.pdf(This is a blast from the past, since these are recordings of a corporate finance class that I taught in the Stern Trium MBA program in January 2016. That said, corporate finance first principles don't magically change over time, and while nothing is timeless, the lessons hold up. The class was a three-day class, with twelve recordings of about an hour and a half each. You can get the entire playlist by going here:youtube.com/playlist?list=PLUkh9m2BorqlDu2zrSN9WZ3xEp3qNgnQj The webpage for the class, with links to additional material is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/webcastexeccf16.htmThe lecture notes for the class are at this link:https://pages.stern.nyu.edu/~adamodar/pdfiles/execs/cf2day2016.pdf)
Session 3: First Steps on Risk Aswath Damodaran 2022-07-26 | In this session, I start by defining risk and then considering the best ways to measure risk in finance.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/execcf/session3.pdf(This is a blast from the past, since these are recordings of a corporate finance class that I taught in the Stern Trium MBA program in January 2016. That said, corporate finance first principles don't magically change over time, and while nothing is timeless, the lessons hold up. The class was a three-day class, with twelve recordings of about an hour and a half each. You can get the entire playlist by going here:youtube.com/playlist?list=PLUkh9m2BorqlDu2zrSN9WZ3xEp3qNgnQj The webpage for the class, with links to additional material is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/webcastexeccf16.htmThe lecture notes for the class are at this link:https://pages.stern.nyu.edu/~adamodar/pdfiles/execs/cf2day2016.pdf)
Session 2: The End Game in Business Aswath Damodaran 2022-07-26 | In this session, I look at what the end game or objective of a business should be, arguing that while there may be multiple stakeholders in a businesses, it is shareholders that have to remain the center of attention, simply because they are the only group with no contractual claim on cash flows.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/execcf/session2.pdf(This is a blast from the past, since these are recordings of a corporate finance class that I taught in the Stern Trium MBA program in January 2016. That said, corporate finance first principles don't magically change over time, and while nothing is timeless, the lessons hold up. The class was a three-day class, with twelve recordings of about an hour and a half each. You can get the entire playlist by going here:youtube.com/playlist?list=PLUkh9m2BorqlDu2zrSN9WZ3xEp3qNgnQj The webpage for the class, with links to additional material is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/webcastexeccf16.htmThe lecture notes for the class are at this link:https://pages.stern.nyu.edu/~adamodar/pdfiles/execs/cf2day2016.pdf)
Session 1: Introduction to the class Aswath Damodaran 2022-07-26 | Corporate finance is the ultimate big picture class and covers the first principles of running a business. In this class, I provide an introduction to the contents and objective of the class, while listing its key themes.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/execcf/session1.pdf(This is a blast from the past, since these are recordings of a corporate finance class that I taught in the Stern Trium MBA program in January 2016. That said, corporate finance first principles don't magically change over time, and while nothing is timeless, the lessons hold up. The class was a three-day class, with twelve recordings of about an hour and a half each. You can get the entire playlist by going here:youtube.com/playlist?list=PLUkh9m2BorqlDu2zrSN9WZ3xEp3qNgnQj The webpage for the class, with links to additional material is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/webcastexeccf16.htmThe lecture notes for the class are at this link:https://pages.stern.nyu.edu/~adamodar/pdfiles/execs/cf2day2016.pdf)
Session 4A: More on the Dark Side of Valuation Aswath Damodaran 2022-07-26 | In this session (first half of afternoon session, day 2), I looked at a series of difficult to value companies, from distressed firms, to commodity and financial service firms and ending with private companies. I also laid out the process for connecting stories to numbers in valuation.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/execs/val2daysession4A.pdf(This is the first of eight sessions, recorded of a two-day valuation class that I taught for NYU's Trium MBA class in 2022. The playlist with all eight sessions is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/execclass.htmThe webpage for the class is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/valseminar2day.htmlThe entire lecture notes are at this link:https://pages.stern.nyu.edu/~adamodar/pdfiles/execs/val2day2022.pdf)
Session 4B: More on Story Telling and Pricing Aswath Damodaran 2022-07-26 | In this session (second half of the afternoon session, day 2), I spent some time using my Uber valuation in June 2014 to illustrate the link between stories and numbers, before closing out with a discussion of how best to price companies.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/execs/val2daysession4B.pdf(This is the first of eight sessions, recorded of a two-day valuation class that I taught for NYU's Trium MBA class in 2022. The playlist with all eight sessions is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/execclass.htmThe webpage for the class is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/valseminar2day.htmlThe entire lecture notes are at this link:https://pages.stern.nyu.edu/~adamodar/pdfiles/execs/val2day2022.pdf)
Session 1A: Introduction and Valuation Themes Aswath Damodaran 2022-07-26 | In this session (first half of morning session, day 1), I provide a rationale for why I do valuation and then list out the broad themes in valuation: that it is a craft, that valuing ≠ pricing, that a good valuation is a melding of story and numbers and that acting on valuation requires faith. I also listed out some common misconceptions about valuation.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/execs/val2daysession1A.pdf(This is the first of eight sessions, recorded of a two-day valuation class that I taught for NYU's Trium MBA class in 2022. The playlist with all eight sessions is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/execclass.htmThe webpage for the class is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/valseminar2day.htmlThe entire lecture notes are at this link:https://pages.stern.nyu.edu/~adamodar/pdfiles/execs/val2day2022.pdf)
Session 3B: Valuing Intangible Assets, Control and Young Companies Aswath Damodaran 2022-07-26 | In this session (second half of morning session, day 2), I started with a quick discussion of the values of brand names and franchise value and an analysis of the expected value of control, before embarking on a valuation of Amazon in 2000, to illustrate the challenges in valuing young companies.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/execs/val2daysession3B.pdf(This is the first of eight sessions, recorded of a two-day valuation class that I taught for NYU's Trium MBA class in 2022. The playlist with all eight sessions is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/execclass.htmThe webpage for the class is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/valseminar2day.htmlThe entire lecture notes are at this link:https://pages.stern.nyu.edu/~adamodar/pdfiles/execs/val2day2022.pdf)
Session 3A: Loose Ends in Valuation Aswath Damodaran 2022-07-26 | In this session (first half of morning session, day 2), I started on the loose ends in valuation with an evaluation of how to deal with cash held by a business, how to value cross holding, factor in complexity and the value of non-operating assetsSlides: https://www.stern.nyu.edu/~adamodar/pdfiles/execs/val2daysession3A.pdf(This is the first of eight sessions, recorded of a two-day valuation class that I taught for NYU's Trium MBA class in 2022. The playlist with all eight sessions is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/execclass.htmThe webpage for the class is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/valseminar2day.htmlThe entire lecture notes are at this link:https://pages.stern.nyu.edu/~adamodar/pdfiles/execs/val2day2022.pdf)
Session 2B: Valuation Inputs - Equity Risk Premiums, Growth Rates and Terminal Value Aswath Damodaran 2022-07-26 | In this session (second half of afternoon session, day 1), I started with an assessment of equity risk premiums before examining the fundamentals that determine growth and the constraints that keep terminal value in check.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/execs/val2daysession2B.pdf(This is the first of eight sessions, recorded of a two-day valuation class that I taught for NYU's Trium MBA class in 2022. The playlist with all eight sessions is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/execclass.htmThe webpage for the class is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/valseminar2day.htmlThe entire lecture notes are at this link:https://pages.stern.nyu.edu/~adamodar/pdfiles/execs/val2day2022.pdf)
Session 2A: Valuation Inputs - Discount Rates Aswath Damodaran 2022-07-26 | In this session (first half of afternoon session, day 1), I looked at how best to estimate risk free rates in different currencies and the fundamentals that determine relative risk (beta), key ingredients in valuation.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/execs/val2daysession2A.pdf(This is the first of eight sessions, recorded of a two-day valuation class that I taught for NYU's Trium MBA class in 2022. The playlist with all eight sessions is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/execclass.htmThe webpage for the class is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/valseminar2day.htmlThe entire lecture notes are at this link:https://pages.stern.nyu.edu/~adamodar/pdfiles/execs/val2day2022.pdf)
Session 1B: Intrinsic Valuation - Big Picture Aswath Damodaran 2022-07-26 | In this session (second half of morning session, day 1), I presented big picture valuations of three companies, and talked about the process of getting the inputs to value companiesSlides: https://www.stern.nyu.edu/~adamodar/pdfiles/execs/val2daysession1B.pdf(This is the first of eight sessions, recorded of a two-day valuation class that I taught for NYU's Trium MBA class in 2022. The playlist with all eight sessions is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/execclass.htmThe webpage for the class is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/valseminar2day.htmlThe entire lecture notes are at this link:https://pages.stern.nyu.edu/~adamodar/pdfiles/execs/val2day2022.pdf)
Session 10: More on financial mix and type Aswath Damodaran 2022-07-15 | In this session, I continue with the discussion of the right financing mix for a firm, before developing a framework for finding the right financing type for a firm.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/execcf/session10.pdf(This is a blast from the past, since these are recordings of a corporate finance class that I taught in the Stern Trium MBA program in January 2016. That said, corporate finance first principles don't magically change over time, and while nothing is timeless, the lessons hold up. The class was a three-day class, with twelve recordings of about an hour and a half each. You can get the entire playlist by going here:youtube.com/playlist?list=PLUkh9m2BorqlDu2zrSN9WZ3xEp3qNgnQj The webpage for the class, with links to additional material is here:https://pages.stern.nyu.edu/~adamodar/New_Home_Page/webcastexeccf16.htmThe lecture notes for the class are at this link:https://pages.stern.nyu.edu/~adamodar/pdfiles/execs/cf2day2016.pdf)
Country Risk: A Mid-year Update for 2022 Aswath Damodaran 2022-07-13 | As investors and businesses look beyond domestic markets, assessing the riskiness of the countries that they invest in, and charging an appropriate amount for that risk has become a key component of investing. In this session, I provide my semi-annual update on country risk, by first looking at the drivers of country risk (political freedom, legal rights, exposure to violence, extent of corruption) and then examining sovereign default risk (ratings and CDS) and equity risk premiums in markets. On every dimension, it has been an eventful six months as risk premiums have risen across the board, and coupled with higher riskfree rates (across most currencies) have pushed up the median costs of capital for US and global companies by 3-3.5%, almost unprecedented for a half year period. Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/blog/CountryRisk2022.pdfBlog Post: aswathdamodaran.blogspot.com/2022/07/country-risk-2022-mid-year-update.htmlPaper (for download; it is boring and long, but it covers all the bases): papers.ssrn.com/sol3/papers.cfm?abstract_id=4161010 Datasets1. Corruption, Legal Rights and Peace Scores, by country: https://www.stern.nyu.edu/~adamodar/pc/blog/CountryRiskJuly22.xlsx2. Default spreads and Equity Risk Premiums, by country: https://www.stern.nyu.edu/~adamodar/pc/datasets/ctrypremJuly22.xlsx
Risk Capital and Markets: A Temporary Retreat or Long term Retrenchment? Aswath Damodaran 2022-06-30 | In the first six months of this year, stock, bond and collectible markets have been upended, with the riskiest investments within each class being damaged the most. It is facile to attribute this to a long overdue correction and I argue that the answer may lie in risk capital, i.e., the capital that is invested in the riskiest assets. Through history, risk capital has ebbed and flowed, with the ebbs and flows affecting risk premiums, the gaps between price and value and the survival/failure of the youngest, riskiest businesses. After a decade, during which risk capital has been plentiful and easily accessible, and following a boom year in 2021, risk capital is retreating in 2022. The question for investors is whether this is temporary, as it was in 2020, in which case you should see risky assets rebounding, or whether it a longer term retrenchment.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/blog/RiskCapital2022.pdfBlog Post: Equity Risk Premium on July 1, 2022: https://www.stern.nyu.edu/~adamodar/pc/implprem/ERPJuly22.xlsx
An Inflation Follow Up: Company Exposure to Inflations Effects Aswath Damodaran 2022-05-20 | In this session, I look at how inflation can affect the value of a company, through its value drivers, from growth to margins to reinvestment and risk. I argue that companies with significant pricing power, with low input costs and investments of short duration and high flexibility will have the strongest ability to pass inflation into their cashflows. The capacity to generate high and stable earnings, with little default risk, will determine how inflation affects discount rates. As a consequence, the effect of inflation, and in particular, unexpected inflation, can vary widely across companies. Looking at the last nine decades of US stock returns, I note that small cap and low price to book stocks have done much better during periods of high inflation. Focusing in on 2022, when inflation has been the lead story driving markets, I document that small cap and low price to book stocks have outperformed markets, just as in the 1970s. Adding on measures for risk and cash flows, it looks like less risky and higher cash flow (operating and dividend) have also outperformed the market. While value investors will view this as vindication, after a decade in the wilderness, it is still too early to draw the conclusion that value is back.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/blog/InflationCompanyValue.pdfBlog Post: aswathdamodaran.blogspot.com/2022/05/a-follow-up-on-inflation-disparate.html
Session 28: The Fat Lady is Singing! Aswath Damodaran 2022-05-09 | In this, the last session of this class, we started with using Dante’s Inferno to illustrate layers of valuation hell, with different valuation sins putting you deeper and deeper in that space. We then used your findings on the project to review the basics of intrinsic valuation, pricing and real options. Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/valUGclosespr22.pdfSummary of project findings: http://www.stern.nyu.edu/~adamodar/pc/eqrec/sprUG22.xlsx
Session 26: The Grand Finale Aswath Damodaran 2022-05-09 | In this, the final session of the class, we started with using Dante’s Inferno to illustrate layers of valuation hell, with different valuation sins putting you deeper and deeper in that space. We then used your findings on the project to review the basics of intrinsic valuation, pricing and real options. Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/valclosespr22.pdf Class project summary: http://www.stern.nyu.edu/~adamodar/pc/eqrec/spr22.xlsx
Session: Closing Session Aswath Damodaran 2022-05-09 | In this session, I use the findings from project analyses to review the entire class, from corporate governance to valuation. I close by going back to the big picture of corporate finance, presented in the first session, and check on whether the objectives of the class have been accomplished.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/ProjSumm22.pdfSummary of project findings: https://www.stern.nyu.edu/~adamodar/pc/cfanalysis/cfspr22.xlsx
In Search of a Steady State: Inflation, Interest Rates and Value Aswath Damodaran 2022-05-06 | After a decade of low and stable inflation (2011-2020), the reappearance of inflation in the early parts of 2021 was a surprise. While the Fed and administration were quick to dismiss the inflation surge as transitional, inflation has stayed stubbornly high into 2022. In this session, I start by presenting the history of inflation in the US, before drawing a distinction between expected and unexpected inflation. As investors have starting building in higher inflation into expectations, it is have economic consequences on interest rates, risk premiums and on the economy. I close the session by looking at how these changes are playing out stock prices, and how inflation behaves over the rest of the year will play out in market direction. In short, the inflation genie is out of the bottle and getting it back in will take more time and more pain than we realize, if history is a guide.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/blog/Inflation2022.pdfBlog Post: aswathdamodaran.blogspot.com/2022/05/in-search-of-steady-state-inflation.htmlIndex Valuation on May 5, 2022: https://www.stern.nyu.edu/~adamodar/pc/blog/S&P500ValueMay5.xlsx
Session 27: Value Enhancement Aswath Damodaran 2022-05-04 | In this class, we started 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). This expected value of control allows us to explain why market prices for stocks rise when corporate governance improves, why voting shares usually trade at a premium over non-voting shares (and why they sometimes don’t).Slides: https://www.stern.nyu.edu/~adamodar/podcasts/valUGspr22/session27slides.pdfPost class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session27Atest.pdfPost class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session27Asoln.pdf
Session 25: Value Enhancement Aswath Damodaran 2022-05-04 | In this class, we started 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). This expected value of control allows us to explain why market prices for stocks rise when corporate governance improves, why voting shares usually trade at a premium over non-voting shares (and why they sometimes don’t).Start of the class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/valenh.pdfSlides: https://www.stern.nyu.edu/~adamodar/podcasts/valspr22/session25slides.pdfPost class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session25test.pdfPost class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session25soln.pdf
Session 25: Valuation Inputs Aswath Damodaran 2022-05-04 | In this 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 7.5%, 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.Slides: https://www.stern.nyu.edu/~adamodar/podcasts/cfspr22/session25slides.pdfPost class test: https://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session25test.pdfPost class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session25soln.pdf
Session 26: Acquirers Anonymous - Seven Steps to Sobriety Aswath Damodaran 2022-05-02 | In this session I focus on the allure of acquisitions, and why they fail so often to deliver value, in practice. 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.htmlIf you look towards the bottom on the post, you will see a YouTube video on the merger.youtu.be/WAiPxHFFHOQI 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.Through the class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/acqanontests.pdfSlides: https://www.stern.nyu.edu/~adamodar/podcasts/valUGspr22/session26slides.pdfPost class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session26Atest.pdfPost class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session26Asoln.pdf
Session 24: Acquirers Anonymous - Seven Steps to Sobriety Aswath Damodaran 2022-05-02 | In this session I focus on the allure of acquisitions, and why they fail so often to deliver value, in practice. 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.htmlIf you look towards the bottom on the post, you will see a YouTube video on the merger.youtu.be/WAiPxHFFHOQI 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.Through the class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/acqanontests.pdfSlides: https://www.stern.nyu.edu/~adamodar/podcasts/valspr22/session24slides.pdfPost class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session24test.pdfPost class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session24soln.pdf
Session 24: Trust, Control and Dividend Policy Aswath Damodaran 2022-05-02 | (I am sorry but I had a malfunctioning mike all session, and the sound quality reflects it.)In this class, we started by using the dividend assessment process of looking at FCFE/cash return and then gauging trust in management, using the companies that we have used as lab experiments in the class (Vale in 2013, Tata Motors in 2013) and peer group analysis. In the process, we looked at why it is so difficult to get out of a dysfunctional dividend policy, as control trumps sanity and worries about the short term and peer group comparable delay action.We then started on valuation as the place where all of the pieces of corporate finance come together - the end game for your investment, financing and dividend decisions. We then looked at how these numbers can be different depending on whether you take an equity or firm perspective to valuation and what causes these numbers to change. Ultimately, though, the best way to learn valuation is by playing with the numbers and seeing how value changes. I also talked about how critical stories are to good valuations and if you are interested, I do have a YouTube video on the topic:youtube.com/watch?v=uH-ffKIgb38Slides: https://www.stern.nyu.edu/~adamodar/podcasts/cfspr22/session24slides.pdfPost class test: https://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session24test.pdfPost class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session24soln.pdf
Session 25: More on Real Options Aswath Damodaran 2022-04-28 | In this class, we continued with our discussion of real options, starting with an analysis of undeveloped natural resources are options and why the option to abandon and financial flexibility can be viewed as options, and how to value them. We then turned our attention to distressed equity, and why stock in a highly levered, money losing firm can become an option, and why it matters for investors. Since the value of distressed equity as an option rests on having a lot of debt, you will not find much use for it on your project, unless you happening to be valuing a company where there is negative earnings or the threat of negative earnings and a lot of debt. If you do, you may find this spreadsheet useful in getting that option value:http://www.stern.nyu.edu/~adamodar/pc/equity.xlsxSlides: https://www.stern.nyu.edu/~adamodar/podcasts/valUGspr22/session25slides.pdfPost class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session25Atest.pdfPost class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session25Asoln.pdf
Session 23: More on Real Options Aswath Damodaran 2022-04-27 | In this class, we continued with our discussion of real options, starting with an analysis of undeveloped natural resources are options and why the option to abandon and financial flexibility can be viewed as options, and how to value them. We then turned our attention to distressed equity, and why stock in a highly levered, money losing firm can become an option, and why it matters for investors. Since the value of distressed equity as an option rests on having a lot of debt, you will not find much use for it on your project, unless you happening to be valuing a company where there is negative earnings or the threat of negative earnings and a lot of debt. If you do, you may find this spreadsheet useful in getting that option value:http://www.stern.nyu.edu/~adamodar/pc/equity.xlsxStart of the class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/realoption1.pdfSlides: https://www.stern.nyu.edu/~adamodar/podcasts/valspr22/session23slides.pdfPost class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session23test.pdfPost class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session23soln.pdf
Session 23: Potential Dividends and Actual Cash Returned Aswath Damodaran 2022-04-27 | 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 and finally assessing whether you trust management enough to give them the freedom to set dividend policy.Quiz 3, with solution: https://www.stern.nyu.edu/~adamodar/pdfiles/cfexams/CFQuiz3Spr22.xlsxSlides: https://www.stern.nyu.edu/~adamodar/podcasts/cfspr22/session23slides.pdfPost class test: https://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session23test.pdfPost class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session23soln.pdf
Session 24: Option Pricing and the Option to Delay Aswath Damodaran 2022-04-25 | We started this class with quiz 3, but after the quiz, we looked 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 or a bad project can be valuable . 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.Quiz 3: https://www.stern.nyu.edu/~adamodar/pdfiles/eqexams/ValQuiz3Spr22.xlsxSlides: https://www.stern.nyu.edu/~adamodar/podcasts/valUGspr22/session24slides.pdfPost class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session24Atest.pdfPost class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session24Asoln.pdf
Session 22: Option Pricing Models and the Option to Delay Aswath Damodaran 2022-04-25 | We started this class with quiz 3, but after the quiz, we looked 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 . 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.Quiz 3: https://www.stern.nyu.edu/~adamodar/pdfiles/eqexams/ValQuiz3Spr22.xlsxSlides: https://www.stern.nyu.edu/~adamodar/podcasts/valspr22/session22slides.pdfPost class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session22Atest.pdfPost class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session22Asoln.pdf
Session 22: The Dividend Principle - First Steps Aswath Damodaran 2022-04-25 | We spent this session first talking about the characteristics of dividends, i.e., that they are sticky and follow earnings as well as reasons for the shift towards buybacks in recent decades, We ended the class by looking at two bad reasons for paying dividends (that they are more certain, that you had a good year). As you wrap your head around buybacks and what they can and cannot do to companies, you may find the following post that I have on the topic useful (or not):http://aswathdamodaran.blogspot.com/2019/02/january-2019-data-update-8-dividends.html In the next class, we will talk about three good reasons for paying dividends as well as a way of measuring how much cash can be returned (FCFE).Slides: https://www.stern.nyu.edu/~adamodar/podcasts/cfspr22/session22slides.pdfPost class test: https://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session22test.pdfPost class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session22soln.pdf
Elons Twitter Play: Valuation Question or Political Rorschach Test? Aswath Damodaran 2022-04-21 | On April 4, 2022, Elon Musk announced that he had taken a 9.2% stake in Twitter, setting off a hectic chain of events, where he joined and unjoined the board, announced a bid to take company private, was thwarted by a poison pill and threatened a tender offer (by tweet). In this session, I argue that to understand and analyze this bid, you have to understand Twitter's history, from inception through its much-heralded IPO in 2013, and the disappointments that investors in the company have felt since. Along the way, the company has also cycled through five CEOs, with Jack serving multiple times, and faced corporate governance challenges, while at the same time, becoming a ubiquitous part of entertainment, news, sports and politics. I assess Twitter management's argument that Musk's offer is a lowball estimated, and Musk's counter that the company has untapped potential that existing management will be unable to exploit. I close by looking at the four possible endings to the story, ranked from most to least likely, and why the way you feel about this acquisition will be colored by your political leanings than by financial analysis.Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/blog/TwitterElon.pdfBlog Post: aswathdamodaran.blogspot.com/2022/04/elons-twitter-play-valuation-and.htmlValuation of Twitter in 2022: https://www.stern.nyu.edu/~adamodar/pc/blog/Twitter2022.xlsxMy IPO valuation of Twitter in October 2013: https://www.stern.nyu.edu/~adamodar/pc/blog/TwitterIPO.xls
Session 23: IPO Valuation and Real Options Introduction Aswath Damodaran 2022-04-20 | We started today’s class by looking at IPOs, and how to incorporate both the proceeds and the pricing considerations of bankers (who guarantee an offering price) as well as how VCs and PEs may look at firms during their transitions. Along the way, we had a discussion of direct listings as a challenge to the IPO process and http://aswathdamodaran.blogspot.com/2019/10/disrupting-ipo-process-challenging.htmlWe then started on the real options discussion with an analysis of the two driving forces behind their value: learning and adaptive behavior, and then moved on to the three questions that need to be asked and answered before buying into the real options argument:1. Is there an option embedded in an asset? (Look at the cash flow payoffs)2. Does that option have value? (Is there exclusivity?)3. Can you use an option pricing model to value that option? (Are the underlying asset and option traded)Start of the class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/pvtco2test.pdfSlides: https://www.stern.nyu.edu/~adamodar/podcasts/valUGspr22/session23slides.pdfPost class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session23Ftest.pdfPost class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session23Fsoln.pdf
Session 21: IPO Valuation and First Steps on Real Options Aswath Damodaran 2022-04-20 | We started this class by looking at private to public transactions before moving on to IPOs, and how to incorporate both the proceeds and the pricing considerations of bankers (who guarantee an offering price) as well as how VCs and PEs may look at firms during their transitions. Along the way, we had a discussion of direct listings as a challenge to the IPO process and http://aswathdamodaran.blogspot.com/2019/10/disrupting-ipo-process-challenging.htmlWe then started on the real options discussion with an analysis of the two driving forces behind their value: learning and adaptive behavior, and then moved on to the three questions that need to be asked and answered before buying into the real options argument:1. Is there an option embedded in an asset? (Look at the cash flow payoffs)2. Does that option have value? (Is there exclusivity?)3. Can you use an option pricing model to value that option? (Are the underlying asset and option traded)Start of the class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/pvtco2test.pdfSlides: https://www.stern.nyu.edu/~adamodar/podcasts/valspr22/session21slides.pdfPost class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session21Ftest.pdfPost class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session21Fsoln.pdf
Session 21: Debt Design Aswath Damodaran 2022-04-20 | In this class, we looked at the design principles for debt. We started by completing a five step process for designing the perfect debt before looking at both intuitive and quantitative ways of debt design. In particular, we looked at a macro economic regression of firm value/operating income against interest rates, GDP, inflation and exchange rates. Keeping in mind the objective of matching debt to assets, think about the typical investments that your firm makes and try to design the right debt for the project. If your firm has multiple businesses, design the right kind of debt for each business. In making these judgments, you should try to think about- whether you would use short term or long term debt- what currency your debt should be in- whether the debt should be fixed or floating rate debt- whether you should use straight or convertible debt- what special features you would add to your debt to insulate the company from defaultYour objective is to get the tax advantages without exposing yourself to default risk. If you want to carry this forward and do a quantitative analysis of your debt, I will send you a spreadsheet tomorrow that will help in the macro economic regressions. I also mentioned that the individual company regressions against the macro variables are so noisy that it is probably not worth the effort. If you are just curious and want to try this out on your company, I do have the macro data collected in a spreadsheet that you can use to run this regression for your company:http://www.stern.nyu.edu/~adamodar/pc/macrodur.xls It has annual and quarterly data through 2021. Just a warning that it is extremely noisy and may spit out output that does not make sense.Slides: https://www.stern.nyu.edu/~adamodar/podcasts/cfspr22/session21slides.pdfPost class test: https://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session21test.pdfPost class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session21soln.pdf
