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Aswath Damodaran: "Valuation: Four Lessons to Take Away" | Talks at Google
 
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The tools and practice of valuation is intimidating to most laymen, who assume that they do not have the skills and the capability to value companies. In this talk, I propose to lay out four simple propositions about valuation. The first is that valuation is not an extension of accounting, insofar as it is not about recording the past but forecasting the future. The second is that valuation is not just modeling, where people put numbers into Excel spreadsheets and pump out values. A good valuation requires a narrative that binds the numbers together. The third is that valuing an asset or business is very different from pricing that asset or business, a difference that is often blurred in practice. The fourth is that luck plays a disproportionate role in whether you make money off your valuations. Put differently, you can do everything right and still walk away with nothing or worse at the end. About the Author I view myself, first and foremost, as a teacher. I do teach valuation and corporate finance not only to MBAs at Stern but to anyone who will listen (on iTunes U, online and on YouTube). I love to write books, teaching material and blog posts. After 30 years of teaching finance, I still find it fascinating as an interplay of economics, psychology and number crunching.
Views: 289474 Talks at Google
Aswath Damodaran | The Investment Valuation Guru | One Road Podcast
 
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Aswath Damodaran is a Professor of Finance at the Stern School of Business at New York University, where he teaches corporate finance and equity valuation. He's been called Wall Street's "Dean of Valuation", and he sits down with One Road Research managing director, Peter Pham.
Views: 1863 One Road Research
Aswath Damodaran – Laws of Valuation: Revealing the Myths and Misconceptions (FULL PRESENTATION)
 
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Aswath Damodaran is the Kerschner Family Chair Professor of Finance at the Stern School of Business at New York University. He teaches the corporate finance and valuation courses in the MBA program. He received his MBA and Ph.D from the University of California at Los Angeles. His research interests lie in valuation, portfolio management and applied corporate finance. He has published in the Journal of Financial and Quantitative Analysis, the Journal of Finance, the Journal of Financial Economics and the Review of Financial Studies. He has also written four books on valuation (Damodaran on Valuation, Investment Valuation, The Dark Side of Valuation, The Little Book of Valuation), and two on corporate finance (Corporate Finance: Theory and Practice, Applied Corporate Finance: A User’s Manual). —— This presentation took place at Nordic Business Forum 2018 on 26.-27. September in Helsinki, Finland. The event gathered together 7500 CEOs, top executives, and entrepreneurs from over 40 countries. —— Nordic Business Forum 2019 will take place in Helsinki, Finland on 9 – 10 October. Tickets for Nordic Business Forum 2019: http://www.nbforum.com/2019 Website: http://www.nbforum.com Facebook: http://www.facebook.com/nbforum.fi Twitter: http://www.twitter.com/NBForumHQ Instagram: http://instagram.com/NBForumHQ LinkedIn: https://www.linkedin.com/company/nordic-business-forum
Views: 101974 Nordic Business Forum
Session 1: Introduction to Valuation
 
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Lays out the rationale for doing valuation as well as the issues of bias, complexity and uncertainty that bedevil it.
Views: 463206 Aswath Damodaran
Aswath Damodaran on valuation and technology investing
 
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ORIGINAL AIR DATE: APRIL 22, 2016 Boom Bust’s Edward Harrison interviews valuation guru Aswath Damodaran, economics professor at New York University. Aswath gives his favored public companies with lots of available public data, with specific commentary on higher growth companies like Tesla and Valeant. He also warns the increasing reliance by analysts and investors on non-GAAP reporting. Aswath then explains the mechanics behind using an equity risk premium calculation before going into his valuation thoughts for a number of high profile tech companies like Facebook, GoPro, Twitter, Amazon, Netflix and more. Check us out on Facebook -- and feel free to ask us questions: http://www.facebook.com/BoomBustRT https://www.facebook.com/harrison.writedowns Follow us @ https://twitter.com/AmeeraDavid http://twitter.com/edwardnh https://twitter.com/BiancaFacchinei
Views: 5689 Boom Bust
Valuation Methods
 
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When valuing a company as a going concern there are three main valuation methods used by industry practitioners: (1) DCF analysis, (2) comparable company analysis, and (3) precedent transactions. These are the most common methods of valuation used in investment banking, equity research, private equity, corporate development, mergers & acquisitions (M&A), leveraged buyouts (LBO) and most areas of finance. Click here to learn more about this topic: https://corporatefinanceinstitute.com/resources/knowledge/valuation/valuation-methods/
Session 11: Picking a DCF Model & Loose Ends in Valuation
 
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In today’s session, we started by looking at fundamental growth in all its variants. With EPS, net income and operating income, we argued that the long term or sustainable growth rate for a firm is a function of how much it reinvests and how well it reinvests, with the measurement of each varying depending upon the earnings metric. We then looked at the possibility of efficiency growth in the short term, as ROE or ROIC change, and finally at the most general way of estimating cash flows, where we start with revenues, then forecast margins and tie up loose ends with reinvestment, tied to sales. In the final part o the session, we looked ways to keep the terminal value from running away with your valuation by capping growth, limiting the growth period and reinvesting enough to sustain growth. I mentioned my incredibly boring paper on accounting returns. You can find it here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1105499 Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/loosends.pdf Slides: http://www.stern.nyu.edu/~adamodar/podcasts/valspr19/session11slides.pdf Post Class Test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session11test.pdf Post Class Test Solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session11soln.pdf
Views: 660 Aswath Damodaran
Session 3: DCF Overview and First Steps on Discount Rates
 
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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
Views: 28369 Aswath Damodaran
Session 7: Estimating Cash Flows
 
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Goes through the steps in estimating cash flows, from measuring earnings to computing reinvestment and then on to cash flows (to both the firm and to equity).
Views: 84250 Aswath Damodaran
Session 35: Relative Valuation
 
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Relative valuation
Views: 8639 Aswath Damodaran
Session 20: Private Company Valuation
 
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Examine the estimation challenges associated with valuing small or large privately-owned businesses.
Views: 32948 Aswath Damodaran
Amazon: Glimpses of Shoeless Joe!
 
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I have long described Amazon as a Field of Dreams company, built on the theme of "if you build it (revenues), they (earnings & cash flow) will come". In this session, I look at Amazon's history and my entanglements along the way, leading up to today. I break Amazon's numbers down into three constituent parts, Amazon Retail/Media, AWS and Amazon Prime, and value them separately to arrive at a value per share for the company. I find it too richly priced for my tastes, a great company that not a very good investment, but I encourage you to make your own judgments. Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/Amazon2018.pptx Blog Post: https://aswathdamodaran.blogspot.com/2018/04/amazon-glimpses-of-shoeless-joe.html Spreadsheets: 1. Valuation of Amazon Retail/Media: http://www.stern.nyu.edu/~adamodar/pc/blog/AmazonRetailApr2018.xlsx 2. Valuation of AWS: http://www.stern.nyu.edu/~adamodar/pc/blog/AWSApr2018.xlsx 3. Valuation of Amazon Prime: http://www.stern.nyu.edu/~adamodar/pc/blog/AmazonPrimeApril2018.xlsx
Views: 12554 Aswath Damodaran
3 ways to value a company - MoneyWeek Investment Tutorials
 
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Valuing a company is more art than science. Tim Bennett explains why and introduces three ways potential investors can get started. Related links… • How to value a company using discounted cash flow (DCF) - https://www.youtube.com/watch?v=jfcRUzKZZE8 • How to value a company using net assets - https://www.youtube.com/watch?v=rV68zoBKTJE • What is a balance sheet? https://www.youtube.com/watch?v=DuKEcxVplnY MoneyWeek videos are designed to help you become a better investor, and to give you a better understanding of the markets. They’re aimed at both beginners and more experienced investors. In all our videos we explain things in an easy-to-understand way. Some videos are about important ideas and concepts. Others are about investment stories and themes in the news. The emphasis is on clarity and brevity. We don’t want to waste your time with a 20-minute video that could easily be so much shorter.
Views: 260812 MoneyWeek
The Keystone Kops of Valuation: Lazard, Evercore and the TSLA/SCTY Deal
 
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When Tesla announced its intent to buy Solar City, Elon Musk was exposed to charges of conflict of interest, since he controlled both companies. The boards of the two companies, aware of the potential for litigation, hired bankers (Tesla hired Evercore and Solar City hired Lazard) to value the two companies and their attempts at valuation are summarized in the Tesla prospectus. In this webcast, I take a look at these critical look at these valuations and conclude that even by the woeful standards of banking valuations, these fall short. Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/KeystoneKops.pdf Blog Post: http://bit.ly/2cH68Ny
Views: 14579 Aswath Damodaran
Investment Whiplash: Better lucky than good?
 
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A little over nine weeks ago, on September 21, 2018, I argued that Apple and Amazon were over valued and followed through with the decision to sell short both stocks, Apple at $230 and Amazon at $1950. On November 30, 2018, those calls make me look prescient but in this session, I posit that any gains on the position are more attributable to luck than skill. I also use my experience to argue that two widely held precepts in value investing, i.e., that intrinsic value never changes and that a long time horizon is a prerequisite for value investing are at odds with value investing first principles and need reexamination. Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/ShortSaleClosure.pdf Blog Post:https://aswathdamodaran.blogspot.com/2018/12/investing-whiplash-looking-for-closure.html
Views: 8712 Aswath Damodaran
Aswath Damodaran: "The Value of Stories in Business" | Talks at Google
 
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The world of investing/finance is divided into two camps. In one, you have the number-crunchers, who believe that the only things that matter are the numbers and that imagination/creativity are dangerous distractions. In the other, you have the storytellers, who build on the stories they tell about companies and how these stories will bring untold wealth. Each side believes it has a monopoly on the truth and looks with contempt at the other. Prof. Damodaran contends that stories matter, but only if they are connected with numbers. And numbers are empty, unless they are connected with narratives. In this talk, he looks at the process by which one might build narratives, check them against reality and convert them into valuations. Uber and Ferrari examples are used to illustrate the process. Slides for the talk: https://goo.gl/zKVaQL Check out the book on Google Play: https://goo.gl/tnGlDe This talk was moderated by Saurabh Madaan.
Views: 97065 Talks at Google
Dividend Discount Model - Commercial Bank Valuation (FIG)
 
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Why the Dividend Discount Model (DDM) is used to value commercial banks instead of the traditional Discounted Cash Flow (DCF) analysis. By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" There are 3 main reasons why the DCF and the concept of Free Cash Flow (FCF) do not apply to commercial banks: 1. You can't separate operating vs. investing vs. financing activities - the lines are very blurry for a bank, since items like debt are more operationally-related and fund the bank's lending activities. 2. CapEx doesn't represent re-investment in the business, as it does for a normal company - for a bank,"re-investment" means hiring people, doing more lending, etc. 3. Working Capital represents something much different for a bank - the standard definition of Current Assets Excl. Cash Minus Current Liabilities Excl. Debt makes no sense, because for banks that includes tons of investments, securities, other borrowings, etc. so you could see massive swings... What You Do Instead - Use Dividends as a Proxy for Free Cash Flow Why? Because banks are CONSTRAINED by capital requirements - according to the Basel accords (I, II, III), they must maintain a certain "buffer" at all times to cover unexpected losses on their loans... So just like CapEx requirements, Net Income growth, and Working Capital constrain FCF for normal companies, the Tier 1 Capital / Tangible Common Equity / Total Capital requirements constrain dividends for banks. So we'll project a bank's regulatory capital, its asset growth, and its net income, and use those to project its dividends - then, discount, and sum up the dividends and discount and add the NPV of its terminal value. How to Set Up a Dividend Discount Model (DDM) 1. Make assumptions for Total Assets, Asset Growth, targeted Tier 1 (or other) Ratios, Risk-Weighted Assets, Return on Assets (ROA) or Return on Equity (ROE), and Cost of Equity. 2. Next, project Assets and Risk-Weighted Assets. 3. Then, project Net Income based on ROA or ROE. 4. Then, project Shareholders' Equity (AKA Tier 1 Capital) based on targeted capital ratio... 5. And BACK INTO dividends! Different from a normal company's DDM! Set dividends such that the minimum capital ratio is maintained, based on starting Shareholders' Equity and Net Income that year. 6. Flesh out the rest of the model - stats, growth rates, other metrics. 7. Discount and sum up dividends. 8. Calculate, discount, and add Terminal Value so that NPV = NPV of Terminal Value + NPV of All Dividends. 9. Calculate the Implied Share Price and compare to actual Share Price. Is the bank undervalued? Overvalued? What are the clues so far? What Next? Try it with a real company, using its historical financial information. Add more complex / realistic assumptions, based on industry research, channel checks, the bank's own strengths/weaknesses, etc. Add more advanced features - other ways to calculate Terminal Value, more accurate regulatory capital, mid-year discount and/or stub periods, stock issuances / repurchases, multiple growth stages, and so on.
Aswath Damodaran - The Value of a User
 
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While traditional business valuations have treated cash flow as the ultimate metric for gauging success, many of today's companies focus more on the size of their user community than their bottom line. Responding to evolving perspectives, newer valuation models attempt to assign value to individual consumers, but these models involve a series of assumptions and generalizations that do not always withstand scrutiny. Using Uber as a case study, this session will compare and contrast user-based valuation models with more traditional discounted cash flow (DCF) models, identifying where they converge and diverge. Aswath Damodaran holds the Kerschner Family Chair in Finance Education and is a Professor of Finance at New York University Stern School of Business. He received a B.A. in Accounting from Madras University, an M.S. in Management from the Indian Institute of Management, and an M.B.A. and Ph.D. in Finance from the University of California. He has been voted “Professor of the Year” by the graduating M.B.A. class five times during his career at NYU. In addition, Professor Damodaran is the author of several highly-regarded and widely-used academic texts on Valuation, Corporate Finance, and Investment Management. Professor Damodaran currently teaches Corporate Finance and Equity Instruments & Markets. His research interests include Information and Prices, Real Estate, and Valuation. The L2 Digital Leadership Academy, led by faculty from NYU Stern, Kellogg School of Management, Harvard Business School, and L2 researchers, is a two-day conference rooted in business fundamentals coupled with tactical sessions on digital topics.
Views: 33297 L2inc
Startup Valuation made simple by Serious Funding: The VC Method
 
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Hello, You have a great startup but you also want a great startup valuation. You have to understand how VCs work when they value companies. Let’s start with their first startup valuation method which they modestly called the VC method . 1. The startup Valuation VC Method The VC method helps you understand how VCs value the money they are about to put in your startup. Basically let’s say that one VC imagines that he should at least double the value of its investment every year (yeah you read me right…that means +100% each year). As he knows that your startup will probably not be sold in one year time, the VC imagines how much money he will make in 3 years (when you will sell your startup to Google…). To do that, he takes your financial projections (or his financial projections if he estimates that your figures are grossly overestimated) and he multiplies your year-3 figures by a selected multiple. He calls that the EXIT value. Example Your year 3 turnover is estimated at USD 100 m (by the way, well done and please allow me to invest…). The VC will imagine that at this time he will be able to sell your startup for 10 times the turnover to Google (in his dreams if actually thinks about 50 times but today he decided to be reasonable). He then values your startup (In year 3) at a whopping USD 1 billion. WOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOW !!!!!!!!!!! Hum, well, that’s in 3 year time… And remember he wants to double its initial investment every year. That’s where the infamous discount rate gets on stage. The VC will then do a backward valuation and says : “If year 3 valuation is USD 1bn, that means that year 2 valuation should be USD 500m, year 1 startup valuation should be USD 250m and year 0 valuation should then be USD 125m once I have put my money” So if we are on year 0, you ask for a USD 25m to the VC he will then tell you : “OK buddy, I will give you USD 25m in exchange for 20% of your company (25/125)”. Simple, no ? (and the good news is that you still have 80% of the billion (well in 3 years…)) 3 concepts to resume it: The Exit value and the exit multiple: what the VC thinks the company will be valued when he will sell it (generally a multiple of something like turnover, EBITDA, EBT etc…) The discount rate: the rate of growth the VC is expecting on his investment (generally varies from 20% to 100% depending on maturity of company, quality of management, competition etc.) The postmoney valuation : your present startup valuation including the money of the investor. I am now sure that you master the startup valuation VC method. However, if you do not want to bother, please visit seriousfunding.be and they will do the work for you. Have a nice funding and see you later for alternative valuation methods (that will allow you to value no-revenues startups). Bye
Views: 46965 Serious Funding
CFA level I-Equity Valuation and Analysis- Part I
 
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FinTree website link: http://www.fintreeindia.com FB Page link :http://www.facebook.com/Fin... We love what we do, and we make awesome video lectures for CFA and FRM exams. Our Video Lectures are comprehensive, easy to understand and most importantly, fun to study with! This Video lecture was recorded by our popular trainer for CFA, Mr. Utkarsh Jain, during one of his live CFA Level I Classes in Pune (India). This video lecture covers following key area's: 1. Evaluation of a security given its current rate market price and a value estimate , is overvalued, fairly valued or undervalued by the market. 2. Major categories of equity valuation models. 3. Rationale for using present-value of cash flow models to value equity & explains 4. dividend discount and free-cash-flow-to-equity models. 5. Calculation of intrinsic value of a non-callable , non-convertible preferred stock. 6. Calculation and interpret the intrinsic value of an equity security based on the Gordon (constant) growth dividend discount model or a two-stage dividend discount model, as appropriate. 7. Companies for which the constant growth or a multistage dividend discount model is appropriate. 8. Rationale for using price multiples to value equity and distinguish between multiples based on comparables versus multiples based on fundamentals. 9. Calculation and interpretation of price to earnings, price to an estimate of operating cash flow, price to sales, and price to book value. 10. The use of enterprise value multiples in equity valuation and demonstrate the use of enterprise value multiples to estimate equity value. 11. Asset-based valuation models and the use of asset-based models to calculate equity value. 12. Advantages and disadvantages of each category of valuation model.
Views: 82765 FinTree
Session 3: Intrinsic Valuation - Baby Steps
 
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In this session, I started out by laying out the outlines of intrinsic valuation and two ways in which you can do DCF. I then looked at the contrast between valuing equity in a business and valuing a business, and used that contrast to emphasize the consistency principle and lay out three broad DCF pathways - the dividend discount model, a FCFE model and a model for valuing the firm. Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/kennecott.ppt Slides: http://www.stern.nyu.edu/~adamodar/podcasts/valUGspr19/session3slides.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
Views: 5475 Aswath Damodaran
Real Estate Valuation Methods
 
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Real Estate Valuation Methods http://reinvestortv.com/real-estate-v... Thanks for watching what methods to use for valuating properties! What would make a property a good or a bad deal? How do you figure out the value of a property? In this video, I’ll show real estate valuation methods you can use for valuating properties. Subscribe and visit: http://REInvestorTV.com for more videos! If you enjoyed, please hit Subscribe and I'll see you again next week for another real estate investment tip, "Popular Questions Answered", or some solid real estate game plans! Join the Fun Facebook: Real Estate Investor TV Twitter: @REInvestorTV LinkedIn: Kris Krohn ============================================================================== Kris Krohn is a real estate investor and the founder of Real Estate Investor TV. Visit this website to learn more about Kris http://reinvestortv.com/ Kris Krohn also established an instructional guide for investors, The Strait Path System, and is the author of The Strait Path to Real Estate Wealth. Unlock your wealth potential! Take yourself to the next level! Join Kris on his 3 day wealth intensive program http://bit.ly/2b2vr8f Kris lives in Orem, Utah, with his wife Kalenn and their four children. ============================================================================= Film by Nate Woodbury http://GoWallaby.com
CFA Level II: Equity Investments - Free Cash Flow Valuation Part I(of 2)
 
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FinTree website link: http://www.fintreeindia.com FB Page link :http://www.facebook.com/Fin... This series of video covers the following points : -There are two ways to estimate the equity value using free cash flows. -An entire firm and all its cash flows (FCFF) are discounted, with the relevant discount rate being the weighted average cost of capital (WACC) because it reflects all the firm’s sources of capital. The value of the firm’s debt is then subtracted to calculate the equity value. -Only the free cash flows to equity (FCFE) are discounted, with the relevant discount rate being the required return on equity. This provides a more direct way of estimating equity value. -In theory, both approaches should yield the same equity value if the inputs are consistent. However, the FCFF approach would be favored in two cases. The firm’s FCFE is negative. -The firm’s capital structure (mix of debt and equity financing) is unstable. The FCFF approach is favored here because a) the required return on equity used in the FCFE approach will be more volatile when the firm’s financial leverage (use of debt) is unstable and b) when using historical data to estimate free cash flow growth, FCFF growth might reflect the firm’s fundamentals better than FCFE growth, which would fluctuate as debt fluctuates. -FCFF and FCFE approaches to valuation -value of a company by using the stable-growth, two-stage, and three-stage FCFF and FCFE models. -appropriate adjustments to net income, earnings before interest and taxes (EBIT), earnings before interest, taxes, depreciation, and amortization (EBITDA), and cash flow from operations (CFO) to calculate FCFF and FCFE. -approaches for forecasting FCFF and FCFE. -approaches for calculating the terminal value in a multistage valuation model -We love what we do, and we make awesome video lectures for CFA and FRM exams. Our Video Lectures are comprehensive, easy to understand and most importantly, fun to study with! -This Video lecture was recorded by our popular trainer for CFA, Mr. Utkarsh Jain, during one of his live CFA Level II Classes in Pune (India).
Views: 21461 FinTree
Startup Valuation - How Are Startups Worth Billions?
 
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You’ll learn about Startup Valuation in this lesson, and see how a traditional methodology such as the Discounted Cash Flow (DCF) analysis applies to early-stage tech startups with no revenue. http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Table of Contents: 2:59 A DCF Analysis for Piped Piper 9:01 What’s Required for a Startup DCF/Valuation to Work 12:35 Recap and Summary How Are Startups Worth Billions of Dollars? “I don’t understand how tech startups can be worth billions of dollars – many of them aren’t even making money yet!” “How can an unprofitable company that isn’t even generating revenue possibly be worth so much? Doesn’t this violate all the principles of valuation?” We get questions like the ones above all the time. The short answer is NO, startup valuation doesn’t violate all the principles. You can still use standard methodologies such as the DCF, but you have to use radically different assumptions that make the analysis less grounded in reality. For the numbers to work, the startup has to start making A LOT of money very quickly in the NEAR FUTURE. If it takes 10-15 years to generate revenue, it will be almost impossible for the numbers to work; but if it happens in the next 2-3 years, it might be plausible. As an example, we look at Pied Piper in this lesson, the fictional company from the HBO show “Silicon Valley.” They make money with a file compression and storage app, and they’re aiming to get hundreds of millions of users and then get a tiny percentage of them using their paid services. So if they currently generate no revenue and have just received $100 million in funding at a $1 billion valuation, is that crazy? A DCF for Pied Piper We assume massive app download growth in the early years, with the company reaching ~500 million annual downloads and ~150 million paid users by the end of Year 10. Revenue goes from 0 to nearly $2 billion over that time frame. The company goes from negative Operating Income to nearly $500 million (25% margin) and almost $300 million in Free Cash Flow. We use a 100x EBITDA multiple to calculate the Terminal Value (arguably fair for a $2 billion company growing at nearly 40% per year). These assumptions are highly speculative, and so we also have to use a much higher Discount Rate: 50%, compared with the standard 8-12% figures you see for mature companies. As a result of all this, far more value comes from the Present Value of the Terminal Value: 99% here, vs. 50-70% for normal companies (and ideally less than that!). The whole valuation is dependent on a huge number of assumptions that are impossible to know in advance: Will billions of people download the app? Will ~5% of users convert to paying customers? Will the company be able to monetize in only 2-3 years’ time? These assumptions might turn out to be true, but there’s a very high chance they might not be – which explains the 50% Discount Rate. Startup Valuation Myths So the DCF does “work” for startups; it’s just not that useful because of all the required assumptions and the inability to guesstimate the numbers for a pre-revenue company. For a valuation to make sense, the company has to start generating money *very quickly* – if it takes ten years for that to happen, the numbers will be even harder to justify. And since the majority of the implied value comes from the Terminal Value, the Terminal Multiple and Terminal Growth Rate are incredibly important. They matter more than long-term profit margins because almost no value comes from the Present Value of Free Cash Flows. RESOURCES: https://youtube-breakingintowallstreet-com.s3.amazonaws.com/107-17-How-Are-Startups-Worth-Billions-Slides.pdf https://youtube-breakingintowallstreet-com.s3.amazonaws.com/107-17-How-Are-Startups-Worth-Billions.xlsx
Valuation and Discounted Cash Flow Analysis (DCF)
 
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Here's a quick overview on Valuation. We also construct an entire discounted cash flow analysis on WalMart in conjunction with my book Financial Modeling and Valuation: A Practical Guide to Investment Banking and Private Equity http://www.amazon.com/Financial-Modeling-Valuation-Practical-Investment/dp/1118558766/ref=sr_1_8?ie=UTF8&qid=1422553204&sr=8-8&keywords=valuation
Views: 87515 Paul Pignataro
WST: 4.1 Investment Banking Training - Basic Valuation Methodologies
 
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Wall St. Training Self-Study Instructor, Hamilton Lin, CFA reviews the basic valuation methodologies utilized by investment bankers and professionals to value companies, ranging from trading comps to deal comps to DCF to break-up analysis and other metrics. For more information of the video courses previewed here, go to: http://www.wstselfstudy.com/modules.html Over 80 hours of online, interactive Self-Study Videos! ***YOUTUBE VISITORS ONLY*** 10% off any online course, use Discount code: youtube http://www.wstselfstudy.com Wall St. Training Self-Study provides online, video-based, self-study financial modeling training solutions to Wall Street. Our interactive course modules are Excel-based and specialize in advanced and complex financial modeling, valuation modeling, investment banking, mergers & acquisitions and leveraged buyout training topics. Enhance your skills and master the content required by Wall Street investment banks, M&A, research, asset management, credit, and private equity firms.
Views: 54464 wstss
Is Tesla Overvalued? ‘Dean Of Valuation’ Aswath Damodaran Weighs In | Trading Nation | CNBC
 
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Aswath Damodaran of NYU’s Stern School of Business discusses Tesla’s valuation with Brian Sullivan. » Subscribe to CNBC: http://cnb.cx/SubscribeCNBC About CNBC: From 'Wall Street' to 'Main Street' to award winning original documentaries and Reality TV series, CNBC has you covered. Experience special sneak peeks of your favorite shows, exclusive video and more. Connect with CNBC News Online Get the latest news: http://www.cnbc.com/ Find CNBC News on Facebook: http://cnb.cx/LikeCNBC Follow CNBC News on Twitter: http://cnb.cx/FollowCNBC Follow CNBC News on Google+: http://cnb.cx/PlusCNBC Follow CNBC News on Instagram: http://cnb.cx/InstagramCNBC Is Tesla Overvalued? ‘Dean Of Valuation’ Aswath Damodaran Weighs In | Trading Nation | CNBC
Views: 44473 CNBC
Valuing Tech's Titans
 
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Are we basing companies' valuations on the right criteria? In this long-form conversation, Scott and NYU Stern colleague Aswath Damodaran discuss what the top digital companies are really worth. (2:07) Source: “International Netflix Subscriptions Surpass U.S.,” Statista, July 2017. http://bit.ly/2v3FLIK (2:38) Source: RBC Capital Markets, June 2016. (3:33) Source: “How Many Users Does Twitter Have?” The Motley Fool, April 2017. http://bit.ly/2w4qIfg (4:11) Source: “How Much Time Do People Spend On Social Media?” Mediakix, December 2016. http://bit.ly/2oFfwWJ (5:13) Source: “Amazon Inc Form 10-K,” Amazon, February 2017. http://bit.ly/2u31VXs (9:16) Source: “Letter To Shareholders,” Amazon, 1997. http://bit.ly/1yx8xhu (11:44) Source: “Amazon’s Long-Term Growth,” Business Insider, 2016. http://read.bi/20c5FVd (12:25) Source: “Form S-1,” Snap, Inc., February 2017. http://bit.ly/2kmGKwj (16:04) Source: “About Us,” Airbnb, 2017. http://bit.ly/18TOxV1 (16:31) Source: “RANKED: The 18 Companies Most Likely to Get Self-Driving Cars On The Road First,” Business Insider, April 2017. http://read.bi/2v3paVu (20:16) Source: “Google and Facebook Devour the Ad and Data Pie. Scraps For Everyone Else,” Digital Content Next, June 2016. http://bit.ly/28JbGA9 (20:53) Source: “Number of Monthly Active WhatsApp Users Worldwide From April 2013 to January 2017 (in millions),” Statista, 2017. http://bit.ly/2j0uHH6 (21:39) Source: “Chart: Here’s How 5 Tech Giants Make Their Billions,” Visual Capitalist, May 2017. http://bit.ly/2qgkaIE (23:09) Source: “Chart: Here’s How 5 Tech Giants Make Their Billions,” Visual Capitalist, May 2017. http://bit.ly/2qgkaIE (23:31) Source: Google Finance, July 2017. (24:56) Source: Google Finance, July 2017. (25:36) Source: “Netflix Missed Its Q1 Subscriber Numbers But Q2 Looks Better,” recode, April 2017. http://bit.ly/2oFhtzW More on Aswath Damodaran's research: damodaran.com Episode 134
Views: 292509 L2inc
How to value a company using discounted cash flow (DCF) - MoneyWeek Investment Tutorials
 
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Every investor should have a basic grasp of the discounted cash flow (DCF) technique. Here, Tim Bennett introduces the concept, and explains how it can be applied to valuing a company.
Views: 486117 MoneyWeek
Private Company Valuation
 
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In this tutorial, you'll learn how private companies are valued differently from public companies, including differences in the financial statements, the public comps, the precedent transactions, and the DCF analysis and WACC. Get all the files and the textual description and explanation here: http://www.mergersandinquisitions.com/private-company-valuation/ Table of Contents: 1:29 The Three Types of Private Companies and the Main Differences 6:22 Accounting and 3-Statement Differences 12:04 Valuation Differences 16:14 DCF and WACC Differences 21:09 Recap and Summary The Three Type of Private Companies To master this topic, you need to understand that "private companies" are very different, even though they're in the same basic category. There are three main types worth analyzing: Money Businesses: These are true small businesses, owned by families or individuals, with no aspirations of becoming huge. They are often heavily dependent on one person or several individuals. Examples include restaurants, law firms, and even this BIWS/M&I business. Meth Businesses: These are venture-backed startups aiming to disrupt big markets and eventually become huge companies. Examples include Kakao, WhatsApp, Instagram, and Tumblr – all before they were acquired. Empire Businesses: These are large companies with management teams and Boards of Directors; they could be public but have chosen not to be. Examples include Ikea, Cargill, SAS, and Koch Industries. You see the most differences with Money Businesses and much smaller differences with the other two categories. The main differences have to do with accounting and the three financial statements, valuation, and the DCF analysis. Accounting and 3-Statement Differences Key adjustments might include "normalizing" the company's financial statements to make them compliant with US GAAP or IFRS, classifying the owner's dividends as a compensation expense on the Income Statement, removing intermingled personal expenses, and adjusting the tax rate in future periods. These points should NOT be issues with Meth Businesses (startups) or Empire Businesses (large private companies) unless the company is another Enron. Valuation Differences The valuation of a private company depends heavily on its purpose: are you valuing the company right before an IPO? Or evaluating it for an acquisition by an individual or private/public buyer? These companies might be worth very different amounts to different parties – they *should* be worth the most in IPO scenarios because private companies gain a larger, diverse shareholder base like that. You'll almost always apply an "illiquidity discount" or "private company discount" to the multiples from the public comps; a 10x EBITDA multiple is great, but it doesn't hold up so well if the comps have $500 million in revenue and your company has $500,000 in revenue. This discount might range from 10% to 30% or more, depending on the size and scale of the company you're valuing. Precedent Transactions tend to be more similar, and you don't apply the same type of huge discount there for larger private companies. You may see more "creative" metrics used, such as Enterprise Value / Monthly Active Users, especially for private mobile/gaming/social companies. DCF and WACC Differences The biggest problems here are the Discount Rate and the Terminal Value. The Discount Rate has to be higher for private companies, but you can't calculate it in the traditional way because private companies don't have Betas or Market Caps. Instead, you often use the industry-average capital structure or average from the comparables to determine the appropriate percentages, and then calculate Beta, Cost of Equity, and WACC based on that. There are other approaches as well – use the firm's optimal capital structure, create a giant circular reference, or use earnings volatility or dividend growth rates – but this is the most realistic one. You use this approach for all private companies because they all have the same problem (no Market Cap or Beta). You'll also have to discount the Terminal Value, but this is mostly an issue for Money Businesses because of their dependency on the owner and key individuals. You could heavily discount the Terminal Value, use the company's future Liquidation Value AS the Terminal Value, or assume the company stops operating in the future and skip Terminal Value entirely. Regardless of which one you use, Terminal Value will be substantially lower for this type of company. The result is that the valuation will be MOST different for a Money Business, with smaller, but still possibly substantial, differences for Meth Businesses and Empire Businesses. http://www.mergersandinquisitions.com/private-company-valuation/
Aswath Damodaran On Current Market Value, Netflix, Indian Banks & Flipkart
 
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The master of valuations, Aswath Damodaran, talks about current market value, Netflix, Indian banks, Flipkart, and more. Read: https://goo.gl/DbqpHs Subscribe to BloombergQuint on WhatsApp: https://goo.gl/NX4KDz
Views: 37551 BloombergQuint
What Is A Valuation Multiple?
 
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This lesson was prompted by a question that came in from a reader and student of our courses the other day: "When you divide Enterprise Value by Revenue (EV / Revenue), or Price Per Share by Earnings Per Share (P / E), what does that actually mean? By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" In other words, if Enterprise Value / Revenue is 5.8x, what does that number actually mean?" Answer often given in textbooks: How valuable a company is in relation to its sales, profits, and so on... based on those metrics, how does the market value that company? But the real answer: the multiple itself means nothing at all! By itself, a single valuation multiple such as 5.8x or 15.3x or 25.7x means... absolutely nothing. Valuation multiples are ONLY meaningful in relation to the multiples of OTHER, similar companies ("public comps" or "public company comparables"). It's like saying, in real life, "The asking price for that house is $500,000, or around $500 per square foot. What does that mean?" Answer: It depends... on the asking prices of similar houses in the region, also on the location, the type of house, # beds and bathrooms, the condition, the neighborhood, the public school system... Could mean that the house is very expensive, or that it's very cheap, or that it's priced about right. You already know this if you've studied valuation and have valued companies on your own... BUT there are 2 specific points that often go overlooked with valuation multiples: 1. The companies you're comparing should ideally have similar growth and margin profiles, or the comparison is less meaningful. It's NOT enough just to be in the same industry and be about the same size - that's a starting point, but financial profiles should ideally be similar as well. Be very careful - acquisitions often distort these numbers! Very different margins also distort the numbers (ex: 2 companies with similar revenue and 1 has a much higher margin - mathematically speaking, very likely to trade at a LOWER multiple just because the denominator will be bigger). 2. Even if the companies DO have similar financial profiles, a higher or lower multiple doesn't necessarily mean that one company is "overvalued" or "undervalued" because qualitative factors also play a role. For example, did the company just make an acquisition? Did it miss earnings? Did it get sued? Did a new competitor pop up? Think of valuation multiples as "clues" in a detective story... they can guide you in the right direction, but 1 clue is not enough evidence to solve the mystery of whether a company is valued appropriately. We demonstrate both of these points with Ralcorp (a food and beverages company) in the video, and show you how the set of public comps all have very different financial profiles that were impacted by acquisitions in some cases. Key Takeaways: 1. A valuation multiple means nothing on its own - only meaningful when compared to other companies', and ideally the median multiple from a set of other companies. 2. When picking a set of public comps, it's not just about industry and size... even if you do select companies with those criteria, must pay attention to growth and margins as well. If all the companies in your set have very different growth and margins from the company you're valuing, you may want to consider a different set. If there are acquisitions, it's better to pay more attention to forward multiples / growth rates / margins instead - for 1-2 years in the future. The analysis is MOST meaningful if, for example, all the companies have very similar growth and margins but the one you're looking at trades at much different multiples - then it's worth investigating further and seeing what explains that. 3. Just because a multiple is higher or lower than other companies' multiples doesn't mean that the company you're valuing is overvalued or undervalued... it's just one of many factors. Here, the presence of a hostile bidder threw off the numbers. Plus, rumors of the company spinning off divisions... Could be any number of things in real life as well - earnings announcements, changes in strategy, expansion plans, patents, lawsuits, management team changes, etc.
Aswath Damodaran – Story and valuation (Nordic Business Forum 2018)
 
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Aswath Damodaran is the Kerschner Family Chair Professor of Finance at the Stern School of Business at New York University.  He teaches the corporate finance and valuation courses in the MBA program. He received his MBA and Ph.D from the University of California at Los Angeles. His research interests lie in valuation, portfolio management and applied corporate finance. He has published in the Journal of Financial and Quantitative Analysis, the Journal of Finance, the Journal of Financial Economics and the Review of Financial Studies. He has also written four books on valuation (Damodaran on Valuation, Investment Valuation, The Dark Side of Valuation, The Little Book of Valuation), and two on corporate finance (Corporate Finance: Theory and Practice, Applied Corporate Finance: A User’s Manual). —— This presentation took place at Nordic Business Forum 2018 on 26.-27. September in Helsinki, Finland. The event gathered together 7500 CEOs, top executives, and entrepreneurs from over 40 countries. —— Nordic Business Forum 2019 will take place in Helsinki, Finland on 9 – 10 October. Tickets for Nordic Business Forum 2019: http://www.nbforum.com/2019 Website: http://www.nbforum.com Facebook: http://www.facebook.com/nbforum.fi Twitter: http://www.twitter.com/NBForumHQ Instagram: http://instagram.com/NBForumHQ LinkedIn: https://www.linkedin.com/company/nordic-business-forum
Valuation of Insurance Companies.
 
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Financial Opportunities Forum: 4th September 2012 - Rajeev Thakkar discusses the basics of valuation of insurance companies...a topic which is rarely covered. Desclaimer: Viewers should assume that PPFAS's Clients, PPFAS, its Directors, Employees have investments in the stocks and Mutual funds which are spoken about (long investment positions). We do not short stocks or indices. We do not speculate in Futures and Options.
Views: 12317 PPFAS Mutual Fund
Session 20: Private Company Valuation
 
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In today’s class, we completed the last few strands of sum of the parts valuation (not pricing) and then started on the discussion of private companies. After laying down the base principle, which is that the fundamentals that drive private company value are the same that drive public companies, we began looking at why motive matters with private company valuation, since the same business can be worth different amounts to different buyers. In terms of specifics, we looked at the challenges of undiversified buyers, illiquidity and key person effects in private-to-private transactions and how they all go away when the buyer is a public company. Next session, we will start on valuing/pricing IPOs and then move on to real options. Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/pvtcotest.pdf Slides: http://www.stern.nyu.edu/~adamodar/podcasts/valfall16/valsession20.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session20Atest.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session20Asoln.pdf
Views: 5795 Aswath Damodaran
Startups Valuation Using The Venture Capital Method | Harvard Business School
 
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How to value startup using the venture capital method? How do you value a startup company when it has no track record or financials? In this series, we use the venture capital method from Harvard Business School to value a dining app business as it goes through three rounds of financing from angels and venture capitalists. This method reflects the process of investors, where they are looking for an exit within 3 to 7 years. For more free finance lessons and 1:1 mentorship with industry experts, visit us: https://mentor.bluebookacademy.com/live-1-1-mentoring/
Views: 36781 BlueBookAcademy.com
DCF, Discounted Cash Flow Valuation in Excel Video
 
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For details, visit: http://www.financewalk.com DCF, Discounted Cash Flow Valuation in Excel Video Discounted Cash Flow (DCF) Valuation DCF valuation can be defined as: "A valuation method used to estimate the attractiveness of an investment opportunity. Discounted cash flow (DCF) analysis uses future free cash flow projections and discounts them (most often using the weighted average cost of capital-which reflects the riskiness of the cash flows) to arrive at a present value, which is used to evaluate the potential for investment. If the value arrived at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one." DCF valuation comes handy when there are no comparable companies available in the market. DCF involves some steps which takes into account firm's capital structure, inflation rate, growth of the economy, growth of the company, riskiness of the project, working capital management, capital expenditure required in future years etc. Inputs to Discounted Cash Flow Models • Discount Rates -- Cost of Debt+Cost of Equity • Expected Cash Flows -- FCFF , FCFE , Dividends • Expected Growth Rate Steps in DCF Step 1 -- Forecast/Measure Free Cash Flow Step 2 -- Estimate WACC/Cost of Equity Step 3 -- Use WACC to discount FCF Step 4 -- Estimate Terminal (Residual) Value Step 5 -- Use WACC to discount Terminal Value Step 6 - Estimate Total Present Value of FCF Step 7 -- Add value of Non-operating Assets Step 8 -- Subtract value of Liabilities assumed Step 9 -- Calculate Value of Common stock
Views: 166044 Avadhut Nigudkar
Facebook: Friendless, but still formidable!
 
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Facebook has had a few really bad weeks, both in financial markets and in public repute. In this session, I look at Facebook, as it stands on April 3, 2018, as an investment. After perhaps the most impressive opening act in corporate history, the company is faced with a moment of truth, where its business model, where users trade information about themselves in return for a free and ubiquitous social media site, is under the microscope. I argue that the data privacy scandal will cause some advertisers to flee, result in lower revenue growth and lower margins and lead to large fines, but notwithstanding all this punishment, the company is a good value (as of April 3, 2018). You will sure disagree with me, and if you do, please use the valuation spreadsheet to make your best judgments. Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/Facebook2018.pdf Facebook valuation: http://www.stern.nyu.edu/~adamodar/pc/blog/FacebookApr2018.xlsx Blog Post: https://aswathdamodaran.blogspot.com/2018/04/the-facebook-feeding-frenzy.html
Views: 12025 Aswath Damodaran
Numbers and Narratives
 
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NYU Stern valuation expert Aswath Damodaran talks about Numbers and Narratives in a Continuing Education presentation to CFA Switzerland on 7 November 2018 in Zürich. The first 2 or so minutes are MIA - sorry!
Using the Ginzu Spreadsheet in Valuation
 
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This is a webcast that leads you through the spreadsheet that I use to value most companies, called fcffsimpleginzu.xls. In keeping with my theme of connecting stories to numbers, I use Severstal, a Russian company, to illustrate how I constructed my story and then converted the story into numbers on the spreadsheet. Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/ginzuWebcast.pdf Severstal valuation: http://www.stern.nyu.edu/~adamodar/pc/blog/Severstal2017.xls Ginzu Spreadsheet: http://www.stern.nyu.edu/~adamodar/pc/fcffsimpleginzu2017.xls
Views: 15541 Aswath Damodaran
Session 9: Terminal Value
 
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It is the biggest number in any discounted cash flow valuation, and we look at simple rules that keep it in check.
Views: 60945 Aswath Damodaran
Aswath Damodaran – 3 principles of corporate finance (Nordic Business Forum 2018)
 
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Aswath Damodaran is the Kerschner Family Chair Professor of Finance at the Stern School of Business at New York University.  He teaches the corporate finance and valuation courses in the MBA program. He received his MBA and Ph.D from the University of California at Los Angeles. His research interests lie in valuation, portfolio management and applied corporate finance. He has published in the Journal of Financial and Quantitative Analysis, the Journal of Finance, the Journal of Financial Economics and the Review of Financial Studies. He has also written four books on valuation (Damodaran on Valuation, Investment Valuation, The Dark Side of Valuation, The Little Book of Valuation), and two on corporate finance (Corporate Finance: Theory and Practice, Applied Corporate Finance: A User’s Manual). —— This presentation took place at Nordic Business Forum 2018 on 26.-27. September in Helsinki, Finland. The event gathered together 7500 CEOs, top executives, and entrepreneurs from over 40 countries. —— Nordic Business Forum 2019 will take place in Helsinki, Finland on 9 – 10 October. Tickets for Nordic Business Forum 2019: http://www.nbforum.com/2019 Website: http://www.nbforum.com Facebook: http://www.facebook.com/nbforum.fi Twitter: http://www.twitter.com/NBForumHQ Instagram: http://instagram.com/NBForumHQ LinkedIn: https://www.linkedin.com/company/nordic-business-forum
EBIT vs. EBITDA vs. Net Income: Valuation Metrics and Multiples
 
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Why Do You Care About This? It's a very common interview question! Q: "How does EBIT differ from EBITDA? What about EV / EBIT vs. EV / EBITDA? When do you use which one? How does P / E compare to those?" By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" And it's very common on the job as well -- you must decide how to value companies and which metrics / multiples to focus on. What are the Differences Between EBIT, EBITDA, and Net Income? These metrics differ in terms of: 1. Who the Money is Available to -- Equity investors, debt investors, and the government? Just equity investors? Someone else? 2. Operating Expenses vs. Capital Expenditures -- Some metrics reflect the impact of both of these, whereas others only reflect the impact of Operating Expenses and ignore spending on long-term assets. 3. Interest, Taxes, and Non-Core Business Activities -- Some metrics include these, and some exclude them. 4. When They're Useful -- Sometimes you WANT to reflect the impact of CapEx, approximating Free Cash Flow, and sometimes you don't. Same for interest and taxes. Here's the summary of differences, by category: How Do You Calculate It? EBIT = Operating Income on the Income Statement EBITDA = Operating Income on the Income Statement + Depreciation & Amortization from the CFS Net Income = Net Income on the Income Statement They Correspond To... EBIT corresponds to Enterprise Value. EV / EBIT is the multiple. EBITDA corresponds to Enterprise Value. EV / EBITDA is the multiple. Net Income corresponds to Equity Value. P / E is the multiple. Who Has a Claim on the Money? For EBIT and EBITDA, equity investors, debt investors, and the government all have a claim. For Net Income, only equity investors have a claim because debt investors have been paid with interest, and the government has been paid with taxes. What Does It Mean? EBIT = Core, recurring business profitability, before the impact of capital structure and taxes. EBITDA = Proxy for core, recurring business cash flow from operations, before the impact of capital structure and taxes. Net Income = Profit after taxes, the impact of capital structure, AND non-core business activities. Which Expenses Does It Reflect? EBIT reflects operating expenses and the impact of CapEx, but EXCLUDES interest, taxes, and non-core business activities. EBITDA is almost the same, but does NOT include the impact of CapEx. Net Income reflects everything -- operating expenses, CapEx, interest, taxes, and non-core business activities. Which Cash Flow-Based Metric Is It Closer To? EBIT is *sometimes* closer to Free Cash Flow, AKA Cash Flow from Operations -- CapEx, because they both reflect CapEx - but really, only *sometimes* is it closer... EBITDA is *sometimes* closer to Cash Flow from Operations because NEITHER one includes CapEx - but really, only *sometimes* is it closer... And Net Income is generally not close to either one. Which One Do You Use And Why? This is a question with a FALSE premise - you're not just picking one or the other! You'll almost always use a variety of metrics and multiples when valuing companies. So, for example, you might look at EV / Revenue, EV / EBITDA, and P / E all for the same company. But generally speaking, if you WANT to reflect the impact of capital expenditures and it's important to do so for the company/industry you're in, EBIT is better than EBITDA. Whereas EBITDA might be better in an industry where CapEx is less important, such as software/Internet/services/anything else where R&D exceeds investments in hard assets. But it also depends on a company's state of development -- CapEx is almost always more important to quickly growing companies, whereas it is less important for mature, stable companies! Regardless of the industry. As for Net Income, you usually look at it as a *supplement* to other metrics and multiples -- on its own, it doesn't necessarily give you a great / accurate view of a company because it's distorted by different tax rates, capital structures, and so on. Further Resources http://youtube-breakingintowallstreet-com.s3.amazonaws.com/STLD-LNKD-EBIT-EBITDA-Net-Income.xlsx
Session 14: The Dark Side of Valuation (Young companies)
 
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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
Views: 3467 Aswath Damodaran
Session 30: Valuation - Cash Flows & Discount Rates
 
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Look at the estimation process and challenges associated with estimating cash flows & discount rates in valuation
Views: 13233 Aswath Damodaran
Session 24: Acquisition Valuation
 
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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. Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/acqanontests.pdf Slides: http://www.stern.nyu.edu/~adamodar/podcasts/valfall16/valsession24.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session24test.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session24soln.pdf
Views: 3435 Aswath Damodaran
Session 2: Valuation Approaches
 
01:30:01
In this session, we look at the different approaches to valuation, what they assume about how markets work (and don't work) and why you may choose one over the other. Start of class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/biastests.pdf Slides: http://www.stern.nyu.edu/~adamodar/podcasts/valspr15/valsession2.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session2test.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session2soln.pdf
Views: 15424 Aswath Damodaran