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Topic Description Webcast Supporting material
Getting data Before you can do valuations and process information, you have to first collect the information. In this webcast, I look at ways to get information on a company's filings, macro economic indicators and sector-wide data. Webcast
  1. SEC website
  2. SEC Live
  3. FRED (Federal Reserve)
From financial disclosures to value Much of the raw material (data) that we use for valuation comes from annual reports and financial filings. (10, 10Q). In this presentation, I lay out a template for extracting information from these filings, separating the stuff that matters from the stuff that does not, using P&G in September 2012 as an illustration.


  1. Presentation
  2. P&G: 10K
  3. P&G: Valuation (Excel spreadsheet)
Creating a trailing 12-month financial statement When valuing a business, you want the most updated information you can find. But what if your most recent annual report or 10K is several months old? The solution is to create a trailing 12-month financial statement.


  1. Apple: 10K
  2. Apple: 10Q
  3. Apple Trailing 12-month (spreadsheet)
Leases and Debt Accounting standards allow companies to classify some leases as operating leases, primarily based upon the degree of ownership vested in the lessee. Operating lease expenses are treated as operating expenses, not financial expenses. The sensible thing to do is to convert lease commitments to debt. In the process, though, you have to redo your financial statements. Webcast
  1. Disney Annual Report
  2. Converting leases to debt (spreadsheet)
Capitalizing R&D R&D is the ultimate cap ex, if you define capital expenditures as investments designed to create benefits over many years. Accountants incorrectly treat R&D as operating expenses. The logical fix is to convert R&D from an operating to capital expenses, though this will also lead to a restatement of both the income statement and the balance sheet. Webcast
  1. Microsoft: 10K for 2012
  2. Microsoft: 10K for 2011
  3. Converting R&D to capital (spreadsheet)
Estimating the risk free rate The risk free rate should be easy, right? In some cases, it may be, but it can be difficult to get risk free rates in some currencies, especially when there is default free entity. In this webcast, I look at the ways in which you can extract default spreads for governments to get to a risk free rate in a currency. Webcast Presentation
Moody's ratings
CDS spreads
Estimating implied equity risk premium I have been a strong proponent of implied equity risk premiums, forward looking estimates that are extracted by looking at stock prices today and expected cash flows in the future. While I have an implied equity risk premium spreadsheet on my website, I try to get some of the mystery out of both the process and the inputs in this webcast. Webcast
  1. Presentation
  2. Spreadsheet
  3. S&P 500 on buybacks
  4. S&P 500 earnings
Reading a regression beta page A regression of returns on your stock against returns on a market index is the standard approach to estimating betas. While I do not like these "single slice of history" estimates, the regression still provides useful information about the performance of a stock during the regression period and its riskiness. Webcast
  1. Bloomberg beta page
  2. Spreadsheet for analysis
  3. Disney Annual Report (2012)
  4. Excel regression beta page
  5. Disney (Raw Data)
  6. S&P (Raw Data)

For a more complete listing of tools webcasts, please try this link.


Lever & unlever betas
This spreadsheet allows you to enter the current beta, tax rate and the debt equity ratio for your stock, and obtain a table of betas at different debt ratios.
Convert operating leases to debt This spreadsheet allows you to convert lease commitments to debt.
Estimate a synthetic rating & cost of debt
This spreadsheet allows you to estimate a rating and a cost of debt for your company from the firm's interext coverage ratio.
Calculate accounting returns (ROE, ROIC) The return on invested capital and return on equity are accounting measures but useful measures, nevertheless, of the quality of existing projects.
Estimate potential dividends & compare to actual dividends This model compares the dividends paid to what a firm could have paid, by estimating the free cash flow to equity (the cash flow left over after net debt payments, net capital expenditures and working capital investments.
This model converts operating lease expenses into financing expenses and restates operating income and debt outstanding.
This model converts R& D expenses from operating to capital expenses, estimates a value for the research asset and restates operating income.
This spreadsheet calculates the implied risk premium in a market. This can be used in discounted cashflow valuation to do market neutral valuation.

For a more complete listing of tools, please try this link.

Blog Posts

Blog Posts
Corporate Governance
  1. Alibaba Governance by Politburo: Corporate Governance & Value
Discount Rates
  1. Can betas be negative?
  2. Alternatives to the CAPM - Economic models
  3. Alternatives to the CAPM - Proxy Models
  4. Alternatives to the CAPM - Connecting cost of equity to debt
  5. Alternatives to the CAPM - Market Implied cost of equity
  6. Thoughts on the risk free rate
  7. Dealing with low risk free rates
  8. ERP and Stocks: Bullish or Bearish Indicator
Accounting Earnings & Returns
  1. Goodwill: More plug variable than asset
Cash Flows
  1. How much cash is too much cash?
  2. Stock Buybacks: They are big, they are back & they scare some people
  3. The Shift to Buybacks: Implications for Investors
  1. The limits of growth
  2. Scaling up growth
  3. The value of growth
  4. How much are you paying for growth?
  5. How much is growth worth?
  1. A Tangled web of values: Enterprise, Firm & Equity Values
  2. Developed versus Emerging Markets: Convergence or Divergence
Data Usage
  1. Moneyball and Investing

If you want to see more posts on these and other finance-related topics, please go to my blog.


Equity Risk Premiums: The 2014 Edition Equity Risk premium paper, updated to reflect data through the start of 2010. Download paper
Leases, Debt and Value When leases are categorized as operating leases, the expenses associated with them are treated as operating expenses and leases become as source of off-balance sheet debt (and assets). As the debate about this practice become heated, we look at the consequences of this practice for widely used measures of profitability and financial leverage as well as inputs into valuation models. Download paper
Operating lease converter
Estimating Riskfree Rates The riskfree rate is a fundamental input to most risk and return models. In practice, estimating riskfree rates becomes difficult when there are no default-free securities. In addition, the question of what riskfree rate to use (short term or long term, dollar or foreign currency) is a critical one. This paper examines these issues. Download paper
The Origins of Growth One of the most difficult challenges in valuing a business is estimating the expected growth rate in future years. In this chapters, we look at the three ways in which this growth rate can be estimated - from history, from analyst or management estimates and from fundamentals. We look at the pluses and minuses of each approach and why they may generate different estimates. Download paper
Measuring Returns: ROE, ROC and ROIC The value of a firm ultimately depends on its capacity to earn returns on its investment that exceed its cost of funding those investments. Accounting measures of returns, primarily return on equity and capital, are significnant determinants of value. In this paper, we examine the motivation behind the focus on returns and how best to clean up accounting numbers to estimate and forecasts returns. Measuring Returns
Employee Stock Options, Restricted Stock and Value Companies use employee stock options (ESOPs) and restricted stock issues to compensate employees. In this paper, we examine why their usage has increased over the last two decades and how best to deal with the option overhang in valuation. We also look at ways of incorporating future option grants into value per share today. Download paper
Dealing with R& D Expenses Accounting standards in the United States and in much of the rest of the world require that R&D be expensed. Since these are expenses that are designed to generate future growth, it is much more logical to treat them as capital expenditures. In this paper, we explore ways in which R&D expenses can be capitalized and the implications for earnings, cash flows, valuations and multiples.

Download paper

R&Dconv.xls: Convert R&D from operating to capital expense

For more applied papers, please try this link.