Explore every episode of the podcast Aswath Damodaran

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

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

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

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

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

It has been an eventful year for banking, with large banks (SVB, Signature and First Republic) all falling like dominos, leaving investors unsettled and regulators off balance. That said, markets have been remarkably resilient through this crisis, suggesting that markets are either in denial or that they have concluded that this is a crisis with relatively small systemic risks. I am a dabbler in banking, and as a novice, I start with basics by looking at the structure of the banking business, with the intent of not only finding the value drivers but also the risk exposure. I use that structure to evaluate how the unprecedented rise in rates in 2022 affected banks, both in good ways (by making their low or no interest deposit base more valuable) and bad ways (by reducing the values of their loans and investment securities). I also look across the bank failures of the year, looking for patterns, and conclude that it is deposit stickiness that seems to be the prime factor. I close by looking at some of the determinants of this stickiness and why bank regulators will have to incorporate these measures into future regulations.Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/Banks2023.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

Deutsche Bank, in addition to having a long and storied history, is a German bank, and the Germans, with their reputation for precision, are viewed as good bankers. Thus, Deutsche's troubles not only over the last few weeks but stretching across the last few years have been unsettling to investors. With the stock down 80% (as of October 4, 2016), it looks like a contrarian bet, but I value Deutsche reflecting the new reality that faces them (big losses, capital shortfalls, possibility of a bailout) and make my investment judgment (Sorry, but you have to watch the video to the end to get that!)Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/DeutscheBank.pdfValuation: http://www.stern.nyu.edu/~adamodar/pc/blog/DeutscheBank2016.xlsBlog Post: http://aswathdamodaran.blogspot.com/2016/10/deutsche-bank-greek-tragedy-at-german.html Learn more about your ad choices. Visit megaphone.fm/adchoices

Following up on my last session, where I drew a contract between good and bed banks, in this one, I look at the contrast between a good banking investment and bad one, iwith banking pricing taking center stage. A good bank that you overpay for is a worse investment than a bad bank that you get at a bargain price. I look at intrinsic valuation in the context of a bank, arguing that you can only value equity (as opposed to operating assets or enterprise value) at a bank and then developing a model, based upon regulatory capital, to estimate free cash flows to equity. I also looking at pricing banks, noting the reasons why price to book ratios have deep roots in analyses, and compare banking price to book ratios across time and across the cross section. I close with a pricing of the 25 biggest US banks and disclose that I will be adding Citi, a bank trading at half its book value, a pricing discount that makes this stodgy, low growth bank into a good investment. Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/BanksInvestments.pdfValuation of Citi: https://pages.stern.nyu.edu/~adamodar/pc/blog/CitiVal2023.xlsx Learn more about your ad choices. Visit megaphone.fm/adchoices

Vas price companies, they don't value them, and that is exactly what you should expect them to do, given how success is measured in the business. That pricing, though is based upon small samples of companies, where price updating is infrequent and transactions are opaque. That makes VC pricing noisy, biased and lagged. Those limitations, though, are what give the very best VCs an edge over the rest.Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/VCPricing.pdfBlog Post: http://aswathdamodaran.blogspot.com/2016/10/venture-capital-it-is-pricing-not-value.html Learn more about your ad choices. Visit megaphone.fm/adchoices

We started this final session for the class by looking at the project findings from your company analysis, from intrinsic value to pricing to recommendations, and used the findings on the project to review the basics of intrinsic valuation, pricing and real options. The slides for the session are at the link below:http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/valclosespr23.pdf If you want to see the entire list of valuations of everyone in the class, please try the link below:http://www.stern.nyu.edu/~adamodar/pc/eqrec/spr2023.xlsx Learn more about your ad choices. Visit megaphone.fm/adchoices

In this class, we started with computing costs of debt for companies without the usual crutches (traded bonds and ratings) and talked about synthetic ratings and default spreads. If you are interested in getting updated default spreads (on the cheap or free), try the Federal Reserve site in St. Louis:https://fred.stlouisfed.org/categories/32297We then moved on to getting the base year's earnings right and explored several issues:1. To get updated numbers, you should be using either trailing 12 month numbers or complete the current year with forecasted numbers. In either case, your objective should be to get the most updated numbers you can for each input rather than be consistent about timing.2. To clean up earnings, you have to correct accounting two biggest problems: the treatment of operating leases as operating (instead of financial) expenses and the categorization of R&D as operating (instead of capital) expenses. The biggest reason for making these corrections is to get a better sense of how much capital has been invested in the business and how much return this capital is generating.Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/cftests.pdfSlides: http://www.stern.nyu.edu/~adamodar/podcasts/valfall16/valsession7.pdfPost class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session7test.pdfPost class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session7soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

This class represented a continuation of the discount rate discussion. We started by reviewing the pitfalls of regression betas and went on to talk about bottom up betas, focusing on defining comparable firms and expanding the sample. I did make a big deal about bottom up betas, but may have still not convinced you or left you hazy about some of the details. If so, I thought it might be simpler to just send you a document that I put together on the top ten questions that you may have or get asked about bottom up betas. I think it covers pretty much all of the mechanics of the estimation process, but I am sure that I have missed a few things.http://www.stern.nyu.edu/~adamodar/New_Home_Page/TenQs/TenQsBottomupBetas.htmWe then started on the cost of debt, starting with a definition of the cost of debt as a long term, current cost of borrowing and laying out a procedure for estimating this cost. Next session, we will complete the cost of capital discussion and move on to cash flows.Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/beta&wacc.pdfSlides: http://www.stern.nyu.edu/~adamodar/podcasts/valfall16/valsession6.pdfPost class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session6test.pdfPost class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session6soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

It is undeniable that AI has boosted stock prices across the board, and specifically so for companies that are core beneficiaries. I look at one of the perceived winners, NVIDIA, to estimate the AI effect on value, and whether the market price has overshot the mark. To set up the story and valuation of the company, I start by looking at both the semiconductor business over time and NVIDIA place in that business. NVIDIA has been able to post high growth in a maturing business by being in the right place at the right time - gaming, crypto and now AI, and my story/valuation of the company is built on the presumption that it will continue to be an opportunistic growth company, that deliver premium operating margins. Notwithstanding the optimistic tilt, I find the company over valued, though it is possible to map out pathways to get to a trillion dollar value.Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/NVIDIA2023.pdfValuation: https://pages.stern.nyu.edu/~adamodar/pc/blog/NVIDIA2023.xlsx Learn more about your ad choices. Visit megaphone.fm/adchoices

I had posted the video for this session a day ago (Sept 21) but the audio was missing from the last 20 minutes. Since I could not recover that audio, I shot an add-one webcast to cover that material and added it to the first hour of the actual class. You will notice when the transition happens.In this session, we started by looking at the implied equity risk premium as of September 21 and I am attaching the implied premium spreadsheet for you to experiment with. After a brief foray into lambda, a more composite way of measuring country risk, we spent the rest of the session talking about the dynamics of implied equity risk premiums and what makes them go up, down or stay unchanged. We then moved to cross market comparisons, first by comparing the ERP to bond default spreads, then bringing in real estate risk premiums and then extending the concept to comparing ERPs across countries. Finally, I made the argument that you should not stray too far from the current implied premium, when valuing individual companies, because doing so will make your end valuation a function of what you think about the market and the company. If you have strong views on the market being over valued or under valued, it is best to separate it from your company valuation.Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/ERPtest2016.xlsSlides: http://www.stern.nyu.edu/~adamodar/podcasts/valfall16/valsession5.pdfPost class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session5test.pdfPost class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session5soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

At the start the 2023, the conventional wisdom was that 2023 would be trying year for stocks and bonds, not only because both asset classes were coming off a terrible year in 2022, but also because inflation looked untamable and the economy seemed to be headed into a recession. It should come as no surprise that markets surprised investors on almost every front: stocks surged in 2023, interest rates leveled off and the economy held its own. In this session, I take stock at the half-way point of the year to look at how stock returns varied across regions, sectors and stock classes and note that almost all of the rise in markets has come from large cap, money-making companies, with the tech giants leading the way. I also look at what the rest of the year looks likely to deliver, providing tentative (sorry, but my macro forecasting skills are lousy) views on inflation and the economy, and a measure of the intrinsic value of the S&P 500 on July 1, 2023. (No suspense: Given earnings forecasts for the index and current interest rates, stocks are close to fairly priced). If you have trouble downloading the files linked below, try a different browser.Blog Post: https://aswathdamodaran.blogspot.com/2023/07/market-resilience-or-investors-in.htmlSlides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/Midyear2023.pdfValuation Spreadsheet for valuing the S&P 500: https://pages.stern.nyu.edu/~adamodar/pc/blog/S&P500ValueJuly2023.xlsx Learn more about your ad choices. Visit megaphone.fm/adchoices

In this session, we started by looking at the implied equity risk premium as of September 21 and I am attaching the implied premium spreadsheet for you to experiment with. After a brief foray into lambda, a more composite way of measuring country risk, we spent the rest of the session talking about the dynamics of implied equity risk premiums and what makes them go up, down or stay unchanged. We then moved to cross market comparisons, first by comparing the ERP to bond default spreads, then bringing in real estate risk premiums and then extending the concept to comparing ERPs across countries. Finally, I made the argument that you should not stray too far from the current implied premium, when valuing individual companies, because doing so will make your end valuation a function of what you think about the market and the company. If you have strong views on the market being over valued or under valued, it is best to separate it from your company valuation.Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/ERPtest2016.xlsSlides: http://www.stern.nyu.edu/~adamodar/podcasts/valfall16/valsession5.pdfPost class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session5test.pdfPost class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session5soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

The question of how and why business and investing risk varies across countries is one that has be answered, if you are either a business making investments across the world or an investor valuing a company with operations in many countries. In this session, I review the findings from my annual update on country risk (a long and boring 100+ page paper), starting with an examination of differences on the fundamentals (political structure, exposure to violence, extent of corruption and strength of legal system) across the globe. I then look at measures of country risk, starting with default risk (in sovereign ratings and CDS spreads), moving on to country risk scores and finally to equity risk premiums. I end the post by connecting these country risk premiums to company hurdle rates, examining both why your currency choice changes your numbers but not your value judgment and how to measure company exposure to country risk.(If you have trouble with downloads, try a different browser.)Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/CountryRisk2023.pdfPost: https://aswathdamodaran.blogspot.com/2023/07/country-risk-july-2023-update.htmlPaper on Country Risk: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4509578Equity Risk Premiums, by country: https://pages.stern.nyu.edu/~adamodar/pc/datasets/ctrypremJuly23.xlsx Learn more about your ad choices. Visit megaphone.fm/adchoices

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The equity risk premium (ERP) is the price of risk in the equity market, set by demand and supply, but determined by economic and market fundamentals. In this session, I look at why the ERP is embedded in almost every investment decision, as an input, and why its level should matter to investors. I look at different approaches to estimating it, from looking at the past (historical returns) to using shortcuts (the earnings yield) to backing out the premium for stock pricing, and why they yield divergent estimates for the ERP, and how to reconcile them.Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/PriceofRisk2023.pdfBlog Post: Learn more about your ad choices. Visit megaphone.fm/adchoices

In this session, we started by continuing the risk free rate discussion, establishing why risk free rates vary across currencies and what to do (or not do) when risk free rates are very low or even negative. We started the discussion of equity risk premiums by looking at the flaws in historical risk premiums and how best to estimate country risk premiums and ended the class with an assessment of how to measure a company's exposure to country risk.Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/risktest.pdfSlides: http://www.stern.nyu.edu/~adamodar/podcasts/valfall16/valsession4.pdfPost class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session4test.pdfPost class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session4soln.pdfERP by country: http://www.stern.nyu.edu/~adamodar/pc/datasets/ctrypremJuly16.xls Learn more about your ad choices. Visit megaphone.fm/adchoices

Every introductory finance class starts by introducing a "risk-free" investment, and the return on that investment becomes an ingredient in almost every aspect of corporate finance and investing. The standard practice for estimating this rate is to use the rate on a government bond, but that presumes that governments, because of their control of money printing, never default. The recent downgrade of the US, by Fitch, from AAA to AA+, challenges that notion, and in this session, I argue that default risk is a clear and present danger even when governments borrow in the local currency, and that when it exist, getting to a risk-free rate becomes messier, and there can be consequences for risk premiums. Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/Riskfree2023.psdBlog Post: https://aswathdamodaran.blogspot.com/2023/08/in-search-of-safe-havens-trust-deficit.html Learn more about your ad choices. Visit megaphone.fm/adchoices

This session 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.pdfSlides: http://www.stern.nyu.edu/~adamodar/podcasts/valfall16/valsession3.pdfPost class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session3test.pdfPost class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session3soln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

In the last year or two, we have seen a wave a stories about sports with mind-boggling numbers, from Al Hilal's attempt to sign Mbappe for $ 1 billion for a one-year contract to the sale of the Washington Commanders, an NFL team, for $ 6 billion. As we all try to explain these numbers with fundamentals, it is worth noting that professional sports franchises have increasingly become trophy assets for billionaires looking for toys. In this session, I build a case for this thesis by first noting the rise in pricing of sports franchises, both in transaction and prices, and then showing that the pricing rise has vastly exceeded any increases in revenues from sports, primarily from broadcasting rights. I also note the change in ownership composition at sports franchises, with wealthy individuals replacing old-time owners, who may have run sports teams as businesses. Viewed as trophy assets, the pricing of sports franchises will continue to deviate from value, with no catalyst for correction. As long as the number of billionaires exceeds the number of desirable sports franchises in the world, this pricing game will continue.Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/SportsFranchises.pdfBlog Post: https://aswathdamodaran.blogspot.com/2023/08/money-in-sports-trophy-asset-effect.htmlValuation of the Washington Commanders: https://pages.stern.nyu.edu/~adamodar/pc/blog/Commanders.xlsx Learn more about your ad choices. Visit megaphone.fm/adchoices

Fairness opinions are offered as protection for investors in deals, especially when there is a danger of self-dealing. While that is a noble motive, fairness opinions, in practice, have becomes shields that managers and boards use against accountability. It is better to have no protection than fake protection, but for fairness opinions to serve their purpose, judges have to step up to the plate and there have to be consequences for bad behavior on the part of appraisers, managers and directors.Blog Post: http://bit.ly/2cwsX4pFairness Checklist: http://www.stern.nyu.edu/~adamodar/pc/blog/fairvaluequestions.docx Learn more about your ad choices. Visit megaphone.fm/adchoices

It has been an unsettling summer for the US movie and broadcasting businesses, with a strike by actors and writers stretching into its third month, a contractual dispute between Disney and Charter leading to a yanking of Disney channels (including ESPN) from Charter cable subscribers and the meltdown in Disney stock prices. In this session, I argue that these are symptoms of a longer term disruption of the movie and broadcasting business, as streaming has changed the way content is made, distributed and watched. After looking at how streaming has altered the volume, cost and type of content made, I look at its effect on the operating metrics and pricing of entertainment companies. I look at three scenarios for how this disruption will continue to play out - complete disruption and devastation, where the movie & broadcasting business mirror the collapse of the music business after Spotify's emergence, at one extreme, and adaptation and co-option, where the traditional movie makers bring their historical strengths to outflank the disruptions, at the other, and an intermediate scenario, where the future of entertainment belongs to the adaptable firms.Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/Entertainment2023.pdfBlog Post: Learn more about your ad choices. Visit megaphone.fm/adchoices

This class started with a test on whether you can detect the direction bias will take, based on who or why a valuation is done. The solutions are posted online. We then moved on to talk about the three basic approaches to valuation: discounted cash flow valuation, where you estimate the intrinsic value of an asset, relative valuation, where you value an asset based on the pricing of similar assets and option pricing valuation, where you apply option pricing to value businesses. With each approach, we talked about the types of assets that are best priced with that approach and what you need to bring as an analyst/investor to the table. For instance, in our discussion of DCF valuation and how to make it work for you, I suggested that there were two requirements: a long time horizon and the capacity to act as the catalyst for market correction.Today's class started with a test on whether you can detect the direction bias will take, based on who or why a valuation is done. The solutions are posted online. We then moved on to talk about the three basic approaches to valuation: discounted cash flow valuation, where you estimate the intrinsic value of an asset, relative valuation, where you value an asset based on the pricing of similar assets and option pricing valuation, where you apply option pricing to value businesses. With each approach, we talked about the types of assets that are best priced with that approach and what you need to bring as an analyst/investor to the table. For instance, in our discussion of DCF valuation and how to make it work for you, I suggested that there were two requirements: a long time horizon and the capacity to act as the catalyst for market correction. We then started our discussion of intrinsic valuation, with a simple experiment on valuation, which led to three propositions about valuation. In the course of that discussion, I mentioned the weapons of mass distraction that people throw at us, as work through the numbers. Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/biastests.pdfSlides: (1) http://www.stern.nyu.edu/~adamodar/podcasts/valfall16/valsession2.pdf(2) http://www.stern.nyu.edu/~adamodar/podcasts/valfall16/valsession2a.pdfPost class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session2atest.pdfPost class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session2asoln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

The COVID shutdown in 2020 created a host of pain, but it did also create some winners, and one of those was Instacart, an online grocery shopping and delivery company that was made for that moment. As Instacart usage soared, its pricing (by venture capitalists) also jumped, hitting $39 billion in a capital round in 2021. The bloom is off the rose, as online grocery sales have leveled off and Instacart is finally going public at a pricing of around $9-10 billion. I start by looking at the Instacart business model, with revenues coming from transaction service feeds and ads, and put it against the backdrop of the business that it serves, which is groceries. The grocery business is huge, but its combination of low growth and low margins, puts a ceiling on how quickly an intermediary in the business can grow and the profitability of that intermediary. I assume modest growth in transactions on Instacart, in line with overall growth in online grocery sales, with a declining take rate and improving profitability to estimate a value per share of about $29. While that put me right in the middle of the offering range, the stock started trading just as I was doing this session, and popped to $42. While I don't think it is an attractive investment at that price, who knows where it will be trading at a week from now? You are welcome to start with my valuation of Instacart and make it your own. Finally, I try to dispense with the notion that value investors are "smart money", by tracking VC investments over Instacart's life as a company, and chronicling that they trade companies, rather than invest in them.Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/InstacartIPO.pdfInstacart Valuation: https://pages.stern.nyu.edu/~adamodar/pc/blog/InstacartIPO.xlsxBlog Post: https://aswathdamodaran.blogspot.com/2023/09/putting-instacart-before-grocery-horse.html Learn more about your ad choices. Visit megaphone.fm/adchoices

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.pdfBlog Post: http://bit.ly/2cH68Ny Learn more about your ad choices. Visit megaphone.fm/adchoices

In this session, I use the end of the third quarter of 2023 as an opportunity to look at economic and market movements during the quarter, and to try to make judgments about what the last quarter has in store. After the economy and markets delivered positive surprises in the first half of 2023, the third quarter was split in two halves, with the first six weeks of the quarter a continuation of the optimism of the first half of the year, and the second six weeks representing a return to a more dour mood. Coming into the fourth quarter, the uncertainties about inflation and the economy that existed at the start of the year remain, in large part, unresolved,. While the market looks close to fairly valued, given consensus earnings estimates and interest rates today, your judgment will change based on whether you think inflation will remain stubbornly high (subside) and on whether you think the economy is headed for a recession (soft landing).Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/EquitiesOct2023.pdfBlog Post: https://aswathdamodaran.blogspot.com/2023/10/market-bipolarit-exuberance-versus.htmlS&P Valuation Spreadsheet: https://pages.stern.nyu.edu/~adamodar/pc/blog/S&P500ValueOct2023.xlsx Learn more about your ad choices. Visit megaphone.fm/adchoices

In this session, I laid out the five broad themes that underlie this class, that valuation is a craft, that it is simple & universal, that value and price represent different concepts, that a good valuation is a bridge between stories and numbers and that valuation is a tool for action (not intellectual curiosity).Syllabus: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/eqsyllfall16.pdfProject description: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/eqproj.pdfSlides: http://www.stern.nyu.edu/~adamodar/podcasts/valfall16/valsession1.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

It is undeniable that intangible assets account for a large portion of value at many companies, and that they are increasing as a percent of value across time. Accountants, who have historically struggled with valuing intangible assets, have started grappling with that shortcoming. In my season, sometimes to the point of obsession, I look at why accountants are so focused on valuing intangibles, and argue that it comes from trying to show them on balance sheets. I also note that while accounting is talking the talk on intangible assets, there is little tangible evidence of change in balance sheets - goodwill, which is a plug variable, is 60% of intangible assets on balance sheets, and the gap between market value and book value at companies with intangible assets has widened over time. I use an intrinsic value framework to explain why I don't think that creating special approaches to value intangibles is unnecessary, and how a good intrinsic valuation should incorporate the value of intangibles.In the second part of the session, I use this framework to value Birkenstock, ahead of its IPO. The company is built on intangibles, and I incorporate the value of brand name, celebrity customers, great management and even the Barbie buzz (from Margot Robbie wearing pink Birkenstock in the movie), to arrive at a value of €8.3 billion for the equity in the company, below, but within shouting distance of the IPO pricing of €9.2 billion.Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/Birkenstock2023.pdfBlog Post: https://www.blogger.com/u/1/blog/post/edit/8152901575140311047/6661365908510421773Birkenstock Valuation: https://pages.stern.nyu.edu/~adamodar/pc/blog/BirkenstockIPO2023.xlsx Learn more about your ad choices. Visit megaphone.fm/adchoices

Much of investing, especially contrarian, is built on the belief that things revert back to norms, either over time or in the cross section. Thus, when you argue that stocks are over priced at a PE of 25, because the historic average is 16, you are buying into mean reversion, just as you when you argue that a steel company trading at 6 times earnings is cheap, because the sector average is 12. While mean reversion is a powerful force, I argue that there is more nuance than we let on, that structural changes can lay waste to it and converting statistical significant to real money is difficult, using the Shiller PE as an illustrative example.Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/MeanReversion.pdfPost: http://bit.ly/2bJzp6k Market timing spreadsheet: http://www.stern.nyu.edu/~adamodar/pc/blog/mkttimingCAPE.xlsx Learn more about your ad choices. Visit megaphone.fm/adchoices

In impact investing, you invest not just for financial returns but to do good for society. Using that definition, impact investing has been part of investing through time, but in the last two decades, it has been formalized as an investing philosophy, with books, academic articles and entities tracking its growth. In this session, I start by looking at the forms that impact investing can take, from inclusionary (investing in "good"), to exclusionary (divesting "bad") to evangelist (Invest in "bad" and try to change behavior), how they are expected to work and the potential for perverse outcomes.I use impact investing directed at climate change to examine the impact, and find the following:(a) It has impacted fund flows, with more than $5 trillion invested in alternative energy in the last decade, and has succeeded in pressuring more than 1600 investment funds to divest fossil fuel assets.(b) Not surprisingly, there has been a pricing effect, with green energy companies gaining in pricing, but fossil fuel companies, after initial shocks, seem to have weathered the impact.(c) Publicly traded fossil fuel companies have seen a return of both revenues & profitability, but they are investing less in fossil fuels and returning more cash to their shareholders. Private equity and non-public energy companies have stepped into the void, and own larger slices of the fossil fuel business.(d) Most critically, impact investing has had little impact on oil consumption or our dependence on fossil fuels for energy.If the definition of insanity is doing the same thing over and over, expecting a different outcome, impact investing, as practiced now, is insane, but there is hope for it, if it comes back in a humbler, more modest form.Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/ImpactInvesting.pdfBlog Post: https://aswathdamodaran.blogspot.com/2023/10/good-intentions-perverse-outcomes.html Learn more about your ad choices. Visit megaphone.fm/adchoices

Robert Shiller's variant on PE (CAPE) has become the most commonly used device that those who believe that the market is in bubble territory use to justify their argument. In this session, I give my jaundiced and biased perspective on CAPE and why focusing on it is costly, for most investors.Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/Superman&Stocks.pdfBlog post: http://aswathdamodaran.blogspot.com/2016/08/superman-and-stocks-it-not-cape-cape-it.html Learn more about your ad choices. Visit megaphone.fm/adchoices

If valuation is a craft, there is no better company to hone that craft on than Tesla. I have valued Tesla almost every year since 2013, and while I have been woefully wrong on occasion, I return to the scene of the crime, to do it again. I review my 2013 valuation of Tesla briefly, before looking at lessons learned in subsequent valuations (story stock in 2016, corporate teenage in 2019, trillion-dollar wonder in 2021 and back-to-earth in January 2023). I then look at what this year has brought for Tesla, both in the market (a soaring first half of 2023, followed by stumbles in the second half) as well as as news (earnings reports and news stories). I focus in on three big news stories - the price cuts, the much-debated advances in FSD and the Cybertruck, and use those stories to reframe the valuation of the company, breaking it down into four businesses (auto, energy, software and robotaxi). With pathways (optimistic, albeit plausible) pathways to success in each business, I estimate a value per share of about $180. Needless to say, you will disagree with me on almost every part of my story, but use the spreadsheet which is attached to make it your own. Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/TeslaOct2023.pdfBlog Post: https://aswathdamodaran.blogspot.com/2023/11/tesla-story-turns-and-twists.htmlValuation of Tesla: https://pages.stern.nyu.edu/~adamodar/pc/blog/Tesla2023OctDIY.xlsx Learn more about your ad choices. Visit megaphone.fm/adchoices

Cash burn refers to the phenomenon of companies, usually young start ups, burning through cash balances and new capital, as they lose money and reinvest more. In this session, I look at the what, why and so what of cash burn, when it is benign and when it can be malignant.Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/CashBurn.pdfBlog Post: http://bit.ly/2brKRXq Learn more about your ad choices. Visit megaphone.fm/adchoices

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This is a really short video (two and a half minutes) introducing the valuation class and laying out its broad themes. Learn more about your ad choices. Visit megaphone.fm/adchoices

In this session, designed to support the implied ERP that I compute every month on my webpage, for the S&P 500.Spreadsheet:1. https://pages.stern.nyu.edu/~adamodar/pc/datasets/histimpl.xls Learn more about your ad choices. Visit megaphone.fm/adchoices

The ride sharing business has succeeded in disrupting the car service business, growing on almost every front. As it has grown, though, the business has had trouble finding traction with its business model and there is a sense that a transitional moment is approaching, where the companies in the business will be judged not just on promise and potential but on profits. The companies are responding by forming partnerships with each other and other companies.Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/RideSharingAug2016.pdfBlog Post: http://bit.ly/2aVmSiHUber 2016 valuation: http://www.stern.nyu.edu/~adamodar/pc/blog/uberAug16.xls Learn more about your ad choices. Visit megaphone.fm/adchoices

In this session, designed to back up my dataset on costs of capital, I explain the basis for cost of capital, as well as the process that I use to estimate costs of equity, debt and capital.Datasets:1. https://pages.stern.nyu.edu/~adamodar/pc/datasets/wacc.xls Learn more about your ad choices. Visit megaphone.fm/adchoices

My vacation this year was spent partly in Florence and here are some investing lessons I learned from the Renaissance Masters: have faith, learn from the past and art & science go hand in hand. I have work to do...Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/Renaissance.pdfBlog Post: Learn more about your ad choices. Visit megaphone.fm/adchoices

In this session, backing up the dataset on total betas, I explain the basis for the total beta approach, and when it can be used to estimate the cost of equity for a business.Dataset:1. https://pages.stern.nyu.edu/~adamodar/pc/datasets/totalbeta.xls Learn more about your ad choices. Visit megaphone.fm/adchoices

Tesla is a story stock, i.e., a stock whose value and price are driven more by the story told about the stock and changes to that story than the numbers that you see the company reporting. In this webcast, I look at how different story lines play out as valuations of Tesla and why you my choose one over the other.Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/Teslastory2016.pdfBlog post: http://aswathdamodaran.blogspot.com/2016/07/tesla-story-meets-numbers-promise-meets.html Learn more about your ad choices. Visit megaphone.fm/adchoices

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Is Brexit the next Lehman? What are the lessons for investing from Brexit? In this webcast, I look at Brexit, reading the tea leaves from how markets (stock, bond, gold, CDS) behaved the day after the crisis through a value perspective and draw some general lessons for investing and corporate governance.Blog post: http://aswathdamodaran.blogspot.com/2016/06/the-brexit-effect-looking-for-signals.htmlSlides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/Brexit.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

In this session, designed to back up the dataset on sustainable growth rates in equity earnings, I explain the basis for a sustainable equity earnings growth rate (as the product of the retention ratio and ROE) and when it can be used as an estimated future growth rate.Dataset:1. https://pages.stern.nyu.edu/~adamodar/pc/datasets/fundgr.xls Learn more about your ad choices. Visit megaphone.fm/adchoices

As investors, you are supposed to value companies, compare these values to prices and make your own valuation judgments. That said, you are exposed to and affected by big name investors making their own judgments about the companies that you invest in. Should your decision to buy a stock be changed by Carl Icahn selling that stock or should your judgment that a company is over valued be altered by Warren Buffett buying shares in that company? I explore the balance between faith and feedback in this session.Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/BigNameInvestors.pdfBlog Post: http://bit.ly/1U9JaM4 Learn more about your ad choices. Visit megaphone.fm/adchoices

In this session, designed to support the dataset on returns on invested capital, I explain how I estimate returns on invested capital and how to use that estimated return on capital in assessing firms. If you are interested in a longer explanation, you can try my paper on accounting returns:Paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1105499Dataset: 1. https://pages.stern.nyu.edu/~adamodar/pc/datasets/roc.xls Learn more about your ad choices. Visit megaphone.fm/adchoices