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This 26-session equity valuation class will be taped starting February 4, 2014, and the lectures are accessible in multiple ways.
You can get the supporting lecture notes by clicking on the pdf files
below - the pages covered by each lecture are provided next to each
lecture. For the syllabus and other details, visit the home
page
.
Introduction to Valuation
Part
I: Discounted Cashflow Valuation: This is a pdf file and works well if you have an iPad or tablet to read it on If you have trouble printing this file, download the powerpoint file. You can then choose to print the slides, one to a page, two or a page, in note format or whatever your heart desires. (Updated for Spring 2014 class).
Part
II: Relative Valuation and Private Company Valuation : This is a pdf file and works well if you have an iPad or tablet to read it on If you have trouble printing this file, download the powerpoint file. You can then choose to print the slides, one to a page, two or a page, in note format or whatever your heart desires. (Updated for Spring 2014 class).
Part
III: Real
Options, Acqusition Valuation and Value Enhancement : This is a pdf file and works well if you have an iPad or tablet to read it on If you have trouble printing this file, download the powerpoint file.You can then choose to print the slides, one to a page, two or a page, in note format or whatever your heart desires. (Updated for Spring 2014 class).
Part
IV: Closing Presentation
This page will include the webcasts from the current class. The webcasts
can be accessed in one of three ways:
Streaming video (The file will be streamed to your computer. This will
work only if you have a good internet connection, but should be of the
best quality)
Video podcast (The .m4v file will be downloaded to your computer and you
can watch the video using Quicktime or video software or on your iPod)
Audio podcast (The .mp3 file will be downloaded as an audio file and can
be played on any audio player). The AV system used to record the lectures
has changed and I think it is much improved.
The prior semester's webcasts
can be found here.
If you want to join the Lore page for this class (or just lurk), here is
the
link.
If you would like to watch the sessions on Appe iTunes U on your Apple device, try this link.
Finally, you can read the emails that I send to the class by this link,as well as the newsletters for the class.
| Session Webcasts | Topics covered | Lecture notes |
1 (2/3/14) Webcast, streamed (need a good internet connection) |
Introduction to Class |
Syllabus
for class |
| Post-class test and solution. | ||
Valuation of the week # 1 |
A Valuation of Vale: Dealing with commodity & country risk
Vale Valuation Spreadsheets |
Google Shared Spreadsheet for Vale valuations |
| Valuation bias: A test and my solutions | Introduction to Valuation (Pages 4-End) Lecture note packet 1: Pages 1-8 |
|
| Valuation: How much detail? Valuation approaches DCF: Valuation choices |
||
| Post-class test and solution. | ||
Weekly Challenge #1 |
Reconciling firm and equity valuation |
Weekly challenge #1 Solution |
Valuation Tools Webcast #1 Getting Data for Valuation |
Data collection: The first step In this webcast, I look at the basics of getting the raw material needed for valuing a business - financial statements, sector information and macro economic data. |
SEC website SEC Live FRED (Federal Reserve) |
| Cash flow consistency: A test (Congoleum) | Lecture note packet 1: Pages 9-39 |
|
| DCF Big picture DCF inputs: The Discount Rate - Setting the table - Risk and the marginal investor - The riskfree rate |
||
| Post-class test and solution. | ||
Valuation of the week #2 |
A valuation of Twitter: Young growth companies and bipolar markets Blog post on the Twitter valuation (February 2014) Twitter's latest 10Q (which caused 25% drop in stock prices) Twitter financials: Bloomberg summary page My valuation of Twitter |
Google shared spreadsheet |
| Risk Premiums: A test | Lecture note packet 1: Pages 40-59 | |
| The Equity Risk Premium - Historical Risk Premiums - Country risk premiums & measuring exposure |
||
| Post-class test and solution. | ||
| Weekly Challenge #2 | Country risk and risk premiums | Weekly challenge # 2 (Simpler- China & Messier- Peru) Solution (Simpler & Messier) |
| Valuation Tools Webcast #2 Implied Equity Risk Premiums |
The logic and the measurement questions behind equity risk premiums | Presentation Spreadsheet S&P 500 on buybacks S&P 500 earnings |
Valuation of the week #3 |
The Comcast acquistion of Time Warner Cable (TWC) My blog post on the Comcast/TWC Deal Comcast: Financial Summary TWC: Financial Summary Valuing Synergy |
Google shared spreadsheet |
5 (2/19/14)
|
Implied Equity Risk Premiums: A test | Lecture note packet 1: 60-84 |
| Implied Equity Risk Premiums - More on estimation - Interaction with other "risk" premiums First steps on betas |
||
| Post class test and solution | ||
| Weekly Challenge # 2a | Implied Premium versus Riskfree Rate |
Implied premium challenge, data and solution |
Valuation Tools Webcast #3 Estimating a risk free rate |
Estimating a risk free rate |
|
Valuation Tools Webcast #4 |
Separating wheat (information) from chaff (data) Changes in accounting and disclosure requirements have bulked up annual reports and 10Ks. While increased disclosure is useful, it is easy to get lost in the details. In this webcast, I use a 10K and a simple valuation spreadsheet to illustrate how to do a "quick read" of a 10K. |
|
| Betas and cost of capital: A test | Lecture note packet 1: 85-103 | |
| Bottom up beta: The approach The cost of debt Debt ratios Cost of capital First steps on cash flows |
||
| Post class test and solution | ||
Valuation of the week #4 |
Starbucks: Financial Summary Data |
Google Shared Spreadsheet for Starbucks |
| Cash flows: A test | Packet 1: 104-123 | |
Earnings and cash flows |
||
| Post class test and solution | ||
| Weekly Challenge # 3 | Adjusting Operating Earnings |
Weekly challenge #3 Solution & Synthetic rating |
| Valuation Tools Webcast #5 Trailing 12 month earnings |
How to use financial statements to create trailing 12 month numbers | |
| Valuation Tools Webcast #6 Converting leases to debt |
The process of converting operating lease commitments to debt | |
| Valuation Tools Webcast #7 Capitalizing R&D expenses |
The process of converting R&D (and like expenses) from operating to capital expenses | |
| Growth rates I: A test | Packet 1: Page 124-147 | |
| Working capital investments From FCFF to FCFE Leverage and FCFE Growth rates - Historical growth rates - Analyst estimates of growth |
||
| Post class test and solution | ||
| Review session for the first quiz | ||
Valuation of the week #5 |
Merck: Annual Report |
Google Shared Spreadsheet |
| Take the first quiz and check out the solution as well as the distribution of grades for the class. | Packet 1: Pages 148-165 | |
| Fundamental growth rates - Growth in earnings per share - Growth in non-cash net income - Growth in operating income - Efficiency growth - Growth when margins are changing |
||
| Post class test and solution | ||
| Weekly Challenge # 4 | Estimating fundamental growth |
Weekly challenge Solution |
| Valuation Tools Webcast #8 Estimating accounting returns (ROE, ROIC) |
In assessing whether a company's existing investments are good or not, we draw on accounting return measures: return on invested capital and return on equity. However, navigating what should be in invested capital and what should not, and how to adjust for accounting inconsistencies is tricky. | |
| Terminal Value: A test | Packet 1: 166-189 | |
| Closing thoughts on growth Terminal value Choosing the right model |
||
| Post class test and solution | ||
Valuation of the Week #6 |
Valuing Bitcoin (NOT) - My post on Bitcoin - Bitcoin data (price, users, transactions etc.) |
Google Shared Spreadsheet |
| Loose Ends: A test | Packet 1: 190-204 | |
| Valuing Cash Dealing with cross holdings Other assets |
||
| Post class test and solution | ||
Weekly Challenge #4a |
Terminal Value | Weekly challenge Solution |
| The terminal value is a "big" number in DCF valuation, but it is subject to misuse and manipuluation. In this session, I take a look at how you can detect problems with a terminal value computation (in both your own DCFs and in other people's DCFs) | Sample DCF valuation Terminal value analyzer |
|
| DCF valuation: A test | Packet 1: 205-233 | |
| Complexity Debt & Legal Jeopardy Dealing with Employee Options Valuing companies - Stable growth DDM - Macro effects on valuation - Valuing the "market" |
||
| Post class test and solution | ||
Valuation of the Week #7 |
Valuing Tesla |
Google Shared Spreadsheet |
| DCF Valuation II: A test | Packet 1: 234-259 | |
| Valuing young, growth companies Valuing mature companies Valuing declining and distressed companies Valuing emerging market companies |
||
| Post class test and solution | ||
Weekly Challenge #5 |
Management Options and Equity Value | |
| When companies compensate employees with options, they create a second claim on equity. When valuing common shares in these companies, you have to incorporate the effect of options outstanding on equity value and I try to look at how in this webcast. | Cisco 10K Option spreadsheet |
|
| Packet 1: 260-286 | ||
| Valuing distressed companies Valuing emerging market companies Valuing financial service companies |
||
| Post class test and solution | ||
Valuation of the week #8 |
Citigroup 10K for 2013 Citigroup geographic segment information Citigroup fails stress test Citigroup stable growth dividend discount model |
Google shared spreadsheet |
Packet 1: 287-End
|
||
| Valuing Cyclical & Commodity Companies Price versus Value Relative valuation - Description - Ingredients |
||
| Post class test and solution | ||
| Review session for the second quiz | ||
Weekly Challenge #6 |
Multiple: Definitional test | Weekly Challenge Solution |
16 (4/7/14) Quiz in first 35 minutes. Skip forward. Webcast, streamed (need a good internet connection) Video podcast (downloadable) Audio Podcast (downloadable) |
Take the second quiz and check out the solution as well as the distribution of grades for the class. | Packet 2: 9-25 |
| Analysis of multiples - PE ratio for a high growth firm - Determinants of PE ratios - Comparing PE across markets and time |
||
| Post class test and solution | ||
Valuation of the week #9 |
Google shared spreadsheet | |
Mystery Project (Due April 25 at 5 pm) |
The mystery project | Data for mystery project |
| Relative Valuation IIa: Test | Packet 2: 26-58 | |
- More on analyzing multiples |
||
| Post class test and solution | ||
Weekly Challenge #7a |
Relative valuation | Weekly challenge Solution |
Valuation Tools Webcast #11: EV, Firm Value and Equity Value |
The "value" embedded in a multiple can be the value of the entire firm, the value of its operating assets (enterprise value) or the value of the equity. In this webcast, we look at the differences between the three and why you may use one over the other. | Blog post on topic Presentation Excel spreadsheet |
| Relative Valuation IIIa: Test | Packet 2: 59-93 | |
| Sector regressions: Unstable or young sectors Market regressions Picking the right multiple Relative versus Intrinsic value Sector versus Market value |
||
| Post class test and solution | ||
Valuation of the week #9 |
Google shared spreadsheet | |
| Private Company Valuation: A test | Packet 2: 95-132 | |
Closingt thoughts on relative valuation |
||
| Post class test and solution | ||
| Weekly Challenge # 8 | Relative Valuation versus DCF valuation | Weekly challenge Solution |
Valuation Tools Webcast #12: Multiples and Fundamentals - Analyzing relationships |
When asked the value a company, relative to other companies, one of the biggest challenges you face is in assessing and analyzing the data. In this presentation, I looks at steps in analysis. | |
| Private Company Valuation II: Test | Packet 2: 133-End Packet 3: 1- 5 |
|
Valuing an initial public offering (IPO) |
||
| Post class test and solution | ||
Valuation of the week #10 |
Valuing an IPO (On hold until Alibaba prospectus is released) |
Google shared spreadsheet |
| Real Options: Introduction | Packet 3: 6-37 | |
| Options in investment analysis - Tests for making a "real options" argument - The option to delay - A patent as an option |
||
| Post class test and solution | ||
Weekly Challenge #9 |
Private company valuation | |
| Review session for the second quiz | ||
| The exclusive rights to produce a product or provide a service can provide the owner with "optionality", allowing for a premium on top of a discounted cash flow value. In this webcast, I look at a simplified example. | ||
22 (4/28/14) |
Take the third quiz and check out the solution as well as the distribution of grades for the class. | Packet 3: 38-55 |
| More on real options - The option to expand - The option to abandon - Financial flexibility as an option |
||
| Post class test and solution | ||
Valuation of the week #11 |
Valuing and revaluing Apple |
Google shared spreadsheet |
| Real Options II: Test | Packet 3: 57-84 | |
Valuing Financial Flexibility as an Option |
||
| Post class test and solution | ||
Weekly Challenge #10 |
Patent valuation | Weekly Challenge Solution |
| With money-losing companies, with a lot of debt, equity takes on the characteristics of a call option (to liquidate the business). In this webcast, I look at the mechanics of applying this approach to a troubled company. | ||
| Acquisition tests | Packet 3: 85-122 | |
Acquisition Valuation |
||
| Post class test and solution | ||
| Value Enhancement: Test | Packet 3: 123-144 | |
| Value enhancement - Price versus Value Enhancement - Ways of enhancing value - The expected value of control - Implications |
||
| Post class test and solution | ||
Review session for the final exam |
||
| Project summaries (for entire class) | ||
| Closing Presentation - Dante meets DCF (Ten tests of valuation) - Project findings |
||
Final Exam (5/14/14) |
Take the final exam & check the solution. |