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In a reflection of my own aging, and the pluses (there are some) and minuses (the list is longer), I have spent the last decade thinking about and writing on how businesses go through a life cycle, from start-up (baby) to early life (toddler) to decline and death. While the corporate life cycle diverges from the human life cycle in some aspects, the desire to be young again is just as strong in businesses, as it is in humans, and an ecosystem (with bankers and consultants playing the same role as plastic surgeons and physical trainers) takes advantage of this desire. In this book, I start with a description of the corpoate life cycle and how to diagnose where your business falls, and then look at the implications of businesses aging on corporate finance, valuation, investing and management. This short video should give you a sense of what this book is about:

 

You can read the preface to the book by clicking here.The material is organized by chapter and includes links to data, my own writings on the topic, other readings and any analyses that is part of the chapter.

The Lead In Corporate Finance Valuation Investing Management
Chapter 1: Unifying Theory Chapter 5: Corp Fin 101 Chapter 9: Valuation 101 Chapter 14: Investing 101 Chapter 18: Managing across CLC
Chapter 2: CLC Basics Chapter 6: Invsting Chapter 10: Valuing youth Chapter 15: Investing in youth Chapter 19: Fighting aging
Chapter 3: CLC Measures Chapter 7: Financing Chapter 11: Valuing high growth Chapter 16: Investing in middle age Chapter 20: In search of serenity
Chapter 4: CLC Transitions Chapter 8: Dividends Chapter 12: Valuing middle age Chapter 17: Investing in decline  
    Chapter 13: Valuing decline    

There is a YouTube playlist, composed of an introductory video and a video for each chapter at the playlist below:

YouTube Playlist for the book: https://www.youtube.com/playlist?list=PLUkh9m2BorqkjTKRzLN9Cx0vIlPvo4Ivw

If you are interested in buying the book, you can try any of the reetailers listed at this link. No pressure, though! I am perfectly okay with your browsing.

Unlike the pope, I am extremely fallible, and with a book that is as full of numbers as this one, there are errors that creep in. If you do find errors in the book, please let me know and I will not only create a corrections page but also make sure that those corrections make their way into future prints. Enjoy!


The Lead In

Chapter 1: A Search for a Unifying Theory

Topic Details
Slides
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My blog posts/writing
  1. A Return to Teaching: The Spring 2023 Edition (December 2022)
Readings/ References
  1. Adizes Corporate Lifecycle - how companies grow and die
  2. Business Life Cycle: The Five Stages of a business life (Corporate Finance Institute)
Exercises

a.     Pick five companies that span the life cycle spectrum, from young growth to declining. This may take a little experimentation, and you may have to revisit your choices as you move through the sessions. If you want, pick a company based upon corporate age:

  1. A (young) company that has gone public in the last five years
  2. A high growth (in revenues) company, with a small market cap
  3. A growth company, with a large market cap
  4. An older company that is still healthy and growing
  5. An older company struggling to grow

b.     Look at each of these companies and assess where they were in the life cycle ten years ago.

Webcast YouTube Video

Chapter 2: The Basics of the Corporate Life Cycle

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My blog posts/writing
  1. A Viral Market Update XIII: The Strong (FANGAM) get stronger! (August 2020)
  2. Back to Earth or Temporary Setback? Revisiting the FANGAM stocks (February 2022)
Readings/ References
  1. Research: The average age of a successful start-up founder is 45 (July 2018)
Data links
  1. New business formations in the US (US Census Data)
  2. Failure rates for US Businesses (Bureau of Labor Statistics)
Exercises a.     For each of the five companies on your list, estimate the operating metrics (revenue growth, operating margins) in the most recent years.
b.     For each of the five companies on your list, evaluate whether there has been, and if yes, how much capital raised (from debt or equity) in the most recent years.
c.     For each of the five companies on your list, look at the shareholder ownership breakdown (founder, insiders, individuals, institutions) in the most recent year.
Webcast YouTube Video

Chapter 3: Measures and Determinants

Topic Details
Slides
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My blog posts/writing
  1. Aging in Dog Years: The Short, Glorious Life of a Successful Tech Company (December 2015)
Readings/ References
  1. Why Japan is home to the world's oldest businesses (November 2023)
  2. Kongo Gumi: The Enduring Legacy of Japan's Oldest Company (October 2023)
Data links
  1. Historical Growth rates, by Industry: US and Global
  2. Operating margins, by Industry: US and Global
Exercises a.     For each of the five companies on your list, estimate the corporate age (from founding year to today).
b.     For each of the five companies on your list, examine the revenue growth rates and operating margins of the industry groups they belong to.
Webcast YouTube Video

Chapter 4: Transitions

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My blog posts/writing
  1. Twitter's Bar Mitzvah: Is social media coming of age? (November 2014)
  2. Disrupting the IPO Process: Challenging the Banker-run Model (October 2019)
Readings/ References
  1. National Venture Capital Yearbook
  2. New York Times articles on private equity
  3. Disrupting the Disruptors? The "Going Public Process" in Transition
Data links
  1. Jay Ritter's IPO data
Exercises a.     If any of your companies are private, find out whether it has accessed venture capital and if so, on what terms.
b.     If any of your five companies are public, examine when the company went public and what its operating metrics (revenue growth, operating margins) looked like at the time of its IPO.
c.     Have any of your companies, since going public, have raised more capital from external providers? If yes, did they raise additional equity or borrow more money?
d.     Have any of your firms been targeted by private equity investors or activists? If yes, when and why?
Webcast YouTube Video

Corporate Finance

Chapter 5: Corporate Finance 101 - A Life Cycle Perspective

Topic Details
Slides
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My blog posts/writing
  1. Corporate Finance 101: A Big Picture, Applied Class (January 2016)
  2. Data Update 5 for 2022: The Bottom Line (February 2022)
  3. Living with noise: Investing and Valuation in the face of uncertainty
References
  1. My online corporate finance class
Exercises a.     Given your assessments of the five companies, which corporate finance decision (investment, financing, dividend) would you expect to have primacy?
b. Are there any corporate finance mismatches (companies not behaving the way they should, given their life cycle position) in your firms?
Webcast YouTube Video

Chapter 6: Investing across the Life Cycle

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My blog posts/writing
  1. A Viral Market Update X: A Corporate Life Cycle Perspective (June 2020)
  2. Earnings and Cashflows: A Primer on Free Cash Flow (October 2022)
  3. Decline and Denial: Thoughts on the Blackberry End game and Microsoft as a Value Trap (September 2013)
  4. Data Update 5 for 2024: Profitability - The End Game for Business? (January 2024)
Readings/ References
  1. ROIC and the Investment Process
  2. Making real options really work
  3. The Promise and Peril of Real Options
  4. Cost of capital: The Swiss Army Knife of Finance
  5. Return on capital, ROIC and ROE: Measurement and Implications
Data links
  1. Costs of capital, by industry: US and Global
  2. Return on capital, by industry: US and Global
  3. Excess returns, by industry: US and Global
Spreadsheets (if any)
  1. wacccalculator.xlsx: Cost of capital calculator
  2. returncalculator.xls: Return on capital calculator
  3. expand.xls: Estimates the value of the option to expand an investment
Exercises a.     Estimate the costs of equity, debt and capital for each of the companies in your group. Discuss the differences.
b.     Estimate the accounting returns (to equity and invested capital) for each of the companies in your group. How would you read the excess returns that you get from comparing accounting returns to costs of equity/capital?
c.     What does a typical project (if any) look like for your company? What challenges would you face in assessing whether it is a good or bad investment?
d.     Is there optionality in investments in any of your companies? How would you make that judgment?
Webcast YouTube Video

Chapter 7: Financing across the Life Cycle

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Slides
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My blog posts/writing
  1. A Viral Market Update IX: A Flexibility Premium (July 2020)
  2. A Tesla 2017 Update: A Disruptive Force and a Debt Puzzle (August 2017)
Readings/ References
  1. How big are the tax benefits of debt? (Graham)
  2. The Indirect Costs of the Lehman Bankruptcy
  3. Financing Innovations and Capital Structure Choices
Data links
  1. Marginal tax rate, by country
  2. Debt fundamentals, by industry: US and Global
  3. Debt breakdown, by industry: US and Global
Spreadsheets (if any)
  1. capstru.xlsx: Estimates the optimal financing mix, by minimizing cost of capital
Exercises a.     Evaluate the mix of debt and equity used by each of your companies to fund their businesses.
b.     If your company has debt, what type of debt does it have? (Debt maturity, currency, straight or convertible etc.)
c.     What tax benefits to each of your companies get from debt? (Look at marginal and effective tax rates, whether the company is making money, net operating losses carried forward)
d.     What is the expected bankruptcy cost from debt to each firm? (Look at volatility in earnings, current bond ratings if any, interest coverage ratios)?
Webcast YouTube Video

Chapter 8: Cash Return (Dividends and Buybacks) across the Life Cycle

Topic Details
Slides
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My blog posts/writing
  1. The Walking Dead: Blackberry, Yahoo! and the Zombie Apocalypse (September 2014)
  2. January 2017 Data Update 9: Dividends and Buybacks (February 2017)
  3. January 201 Data Update 9: Dividends, Stock Buybacks and Cash Holdings (February 2018)
  4. Data Update 7 for 2023: Dividends, Buybacks and Cashflows (March 2023)
Readings/ References
  1. Six Muddles about Stock Buybacks (Financial Times)
  2. Dividends versus Buybacks: Which creates more value? (McKinsey)
Data links
  1. Dividend fundamentals, by industry: US and Global
  2. Dividends and FCFE, by industry: US and Global
Spreadsheets (if any)
  1. dividends.xlsx: Estimates potential dividends (FCFE) for a company and compares to cash returned
  2. buybackcalculator.xls: Estimates the effect on the stock price of a stock buyback
Exercises a.     How much cash (FCFE) could each of your firms have returned in the most recent year(s)?
b.     How much cash did your firms return in the most recent years?
c.     In what form (dividends or buybacks) was the cash returned, if at all?
Webcast YouTube Video

Valuation

Chapter 9: Valuation 101

Topic Details
Slides
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My blog posts/writing
  1. Reacting to Earnings Reports: Pricing Metrics and Market Reactions (August 2014)
  2. DCF Myth 2: A DCF is an exercise in modeling and number crunching (August 2015)
  3. January 2018 Data Update: The Price is Right! (February 2018)
Readings/ References
  1. Discounted cashflow valuations (DCF): Academic Exercise, Sales Pitch or Investing Tool
  2. A Survey of Valuation Approaches
  3. January 2019 Data Update 9: The Pricing Game (February 2019)
  4. Relative Valuation (Pricing) First Principles
Data links
  1. Valuation inputs, industry averages: US and Global
Spreadsheets
  1. fcffsimpleginzu.xlsx: Estimates the intrinsic value for a company, with narrative built in
  2. divginzu.xlsx: Estimate the intrinsic value of equity in a company, based upon expected dividends
  3. eqmult.xls: Estimate an intrinsic equity multiple (of earnings or book value) for a firm
Exercises a.     Estimate the historical values for revenue growth, margins and reinvestment (sales to capital) for each of your firms.
b.     Estimate at least three pricing multiples for each of your firms, with a mix of equity and enterprise value ratios.
c.     Find peer group companies for each of your firms, with median (and average) values for the pricing multiples of your choice.
Webcast YouTube Video

Chapter 10: Valuing young and start-up businesses

Topic Details
Slides
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My blog posts/writing
  1. Risk Capital and Markets: A Temporary Retreat of Long Term Pull Back? (July 2022)
  2. The Bonfire of Venture Capital: The Good, the Bad and the Ugly Side of Cash Burn! (August 2016)
Readings/ References
  1. The Dark Side of Valuation: Valuing firms with no earnings, no history and no comparables
  2. Valuing Young, Start-up and Growth Companies: Estimation issues and Valuation challenges
  3. Tell me a story (CFA Institute)
Data links
  1. Revenue multiples, by industry: US and Global
Spreadsheets (if any) Zomato IPO valuation with blog post
Exercises For the youngest company in your peer group:
a.     Given what you have learned about your company, what is your valuation story?
b.     Does your valuation story pass the 3P test?
c.     How does your valuation story play out in your valuation inputs (revenue growth, margins, reinvestment, and risk)?
d.     Given these valuation inputs, what is your valuation for the company?
e.     How uncertain are you about this valuation? How do you deal with this uncertainty?
f.      Is there any optionality in this company? If yes, why and what drives that option’s value?
Webcast YouTube Video

Chapter 11: Valuing high growth businesses

Topic Details
Slides
Download as pdf file
My blog posts/writing
  1. Interest Rates, Earnings Growth and Equity Value - Investment Implications (March 2021)
  2. The Aging of the Tech Sector: The Pricing Divergence of Young and Old Tech Companies (February 2015)
Readings/ References
  1. The Big Market Delusion: Valuation and Investment Implications
  2. Growth Investing: Betting on the future?
Data links
  1. PE and PEG ratio, by industry: US and Global
Spreadsheets (if any) Airbnb IPO valuation with blog post
Exercises For the high growth company in your peer group:
a.     Given what you have learned about your company, what is your valuation story?
b.     Does your valuation story pass the 3P test?
c.     How does your valuation story play out in your valuation inputs (revenue growth, margins, reinvestment, and risk)?
d.     Given these valuation inputs, what is your valuation for the company?
e.     How uncertain are you about this valuation? How do you deal with this uncertainty?
f.      What is the value that growth is adding (or destroying) in your company?
Webcast YouTube Video

Chapter 12: Valuing mature businesses

Topic Details
Slides
Download as pdf file
My blog posts/writing
  1. The Difference Makers: Key Person(s) Valuation (December 2023)
  2. Divergence in the Drug Businesses: Pharmaceuticals and Biotechnology (November 2015)
Readings/ References
  1. The Octopus: Valuing Multi-business, Multi-national Companies
Data links
  1. EV multiples, by industry: US and Global
Spreadsheets (if any) Unilever valuation
Exercises For the mature company in your peer group:
a.     Given what you have learned about your company, what is your valuation story?
b.     Does your valuation story pass the 3P test?
c.     How does your valuation story play out in your valuation inputs (revenue growth, margins, reinvestment, and risk)?
d.     Given these valuation inputs, what is your valuation for the company?
e.     How uncertain are you about this valuation? How do you deal with this uncertainty?
Webcast YouTube Video

Chapter 13: Valuing declining businesses

Topic Details
Slides
Download as pdf file
My blog posts/writing
  1. Negative growth rates forever? Impossible! (November 2016)
  2. No light at the end of the tunnel: Investing in bad businesses (May 2015)
  3. The Yahoo Chronicles: Is this the end game? (December 2015)
Readings/ References
  1. Valuing declining and distressed companies
Data links
  1. Book value multiples, by industry: US and Global
Spreadsheets (if any) Bed, Bath and Beyond valuation
Exercises For the declining company in your peer group:
a.     Given what you have learned about your company, what is your valuation story?
b.     Does your valuation story pass the 3P test?
c.     How does your valuation story play out in your valuation inputs (revenue growth, margins, reinvestment, and risk)?
d.     Given these valuation inputs, what is your valuation for the company?
e.     How uncertain are you about this valuation? How do you deal with this uncertainty?
Webcast YouTube Video

Investing

Chapter 14: Investment Philosophies 101

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My blog posts/writing
  1. The secret to investment success: Self awareness? (November 2010)
  2. Active investing: Seeking the elusive edge (December 2016)
  3. The Search for Investment Serenity: The Look Back Test (April 2015)
  4. Active Investing: Rest in peace or Resurgent force (November 2016)
Readings/ References
  1. The Importance of an Investment Philosophy
  2. Trading Stages in the Company Life Cycle (Morgan Stanley)
Data links
  1. SPIVA Scorecard for active investing
Exercises a.     Are you an active investor?
b.     If yes, what types of mistakes do you think markets make, and why? If no, why not?
c.     What investment strategies do you use (or plan to use) to take advantage of those mistakes?
d.     What are the weakest links in your investment philosophy/strategies?
e.     Do you have an investment track record? Have you earned more than you would have as a passive investor (buying index funds)?
Webcast YouTube Video

Chapter 15: Investing in Youth (Young and Growth businesses)

Topic Details
Slides
Download as pdf file
My blog posts/writing
  1. The Compressed Tech Life Cycle: The Investor Challenge (December 2015)
Readings/ References
  1. Going to Pieces: Valuing Users, Subscribers and Customers
  2. The Peter Lynch Appraoch to Investing in "Understandable" Stocks (Maria Scott, Cal State University)
  3. How to invest like Peter Lynch (Motley Fool)
  4. Growth vs Value Investing: Which is best for you? (Forbes)
Data links
  1. Pitchbook VC indices
Exercises a.     If you had the capital and the capacity, do you think you would be a successful venture capitalist? If yes, why? If no, why not?
b.     As a public market investor, what approach to investing in growth companies offers the best odds for you? Why?
Webcast YouTube Video

Chapter 16: Investing in Middle Age (Mature businesses)

Topic Details
Slides
Download as pdf file
My blog posts/writing
  1. Value Investing I: The Back Story (October 2020)
  2. Value Investing II: A Lost Decade (October 2020)
  3. Value Investing III: Rebirth, Requiem or Reincarnation? (October 2020)
Readings/ References
  1. Value Investing: Investing for Grown-ups?
  2. Berkshire Hathaway: Shareholder letters
Exercises a.     If you had the capital and the capacity, do you think you would be an activist value investor? If yes, why? If no, why not?
b.     As a public market investor, what approach to investing in mature companies offers the best odds for you? Why?
Webcast YouTube Video

Chapter 17: Investing in Old Age (Shrinking and declining businesses)

Topic Details
Slides
Download as pdf file
My blog posts/writing
  1. The GE End Game: Bataan Death March or Turnaround Play? (November 2018)
  2. Private Equity: Hero or Villain (January 2012)
Readings/ References
  1. The Anatomy of a LBO: Leverage, Control and Value
Exercises a.     If you had the capital and the capacity, do you think you would be a private equity investor? If yes, why? If no, why not?
b.     As a public market investor, what approach to investing in declining companies offers the best odds for you? Why?
Webcast YouTube Video

Managing

Chapter 18: Managing across the life cycle

Topic Details
Slides
Download as pdf file
My blog posts/writing
  1. The Compressed Tech Life Cycle: The Managerial Challenge (December 2015)
  2. Managing across the Corporate Life Cycle (December 2021)
  3. META Lesson 1: Corporate Governance (November 2022)
Readings/ References
  1. The mindsets and practices of excellent CEOs (McKinsey)
  2. Triumph and Disaster: The Best and Worst CEOs of 2023 (Yale)
  3. Lessons from history's worst CEOs (CEO Magazine)
Data links
  1. List of best company CEOs (Comparably)
Exercises a.     Who is the CEO of each of your companies? How long has he/she been CEO and how did he/she get the position (founder, hired from outside, hired from inside)?
b.     Is your CEO matched to your company?
c.     If there is a mismatch, is there a response building to that mismatch (activist investors, proxy challenges)?
Webcast YouTube Video

Chapter 19: Fighting Aging

Topic Details
Slides
Download as pdf file
My blog posts/writing
  1. Rebirth and Reincarnation: Escaping the corporate death spiral (September 2013)
  2. Walmart's India Gambit: Growth Rebirth or Costly Facelift? (May 2018)
Readings/ References
  1. The Apple Comeback (Inc)
  2. The Six Biggest Comeback Stories of all time (Think Business)
  3. The Lessons from Microsoft's Startling Comeback (Economist)
  4. Leading companies out of crisis: Ten Tips (McKinsey)
Exercises For the declining company in your group
a.     What would denial look like (in terms of investing, financing and cash return policies?
b.     What would acceptance look like (in terms of investing, financing and cash return policies)?
c.     What would a revamp/rebirth look like (in terms of investing, financing and cash return policies)?
d.     Which of the above paths is the management currently running the company most likely to pick?
Webcast YouTube Video

Chapter 20: In Search of Serenity

Topic Details
Slides
Download as pdf file
My blog posts/writing
  1. Aging in Dog Years: The Short, Glorious LIfe of a Successful Tech Company (December 2015)
  2. How a company can act its age (Oslo Business Forum)
Readings/ References
  1. In Silicon Valley, you can forget aging gracefully (Time)
Exercises Given what you have learned about each of your five companies across the dimensions, has your view about where each of them falls in the life cycle changed? If yes, in what way and why?
Webcast YouTube Video

Add ons
Exercises
Glossary
Updated data
Spreadsheets

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