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Val emails


The emails for this class will be collected on this page, arranged chronologically. Since I send quite a few, you can target it on a specific month by going here:

Email content
Welcome back! As I checked through the roster, I noticed a lot of familiar names from corporate finance, and you know that the email deluge that awaits you.I am sure that you are finding that break is passing by way too fast, but the semester will soon be upon us and I want to welcome you to the Valuation class.  One of the best things about teaching this class is that valuation is always timely (and always fun...) Just as examples: Is it time to sell Tesla or to buy it?  How much di the Barbie Buzz add to Birkenstock’s value? Why do the Adelsons think that the Dallas Mavs are worth $9 billion? You will find the answers to these and other questions on my blog:

1. Preclass work: I  know that some of you are worried about the class but relax! If you can add, subtract, divide and multiply, you are pretty much home free… Seriously, all I need of you is a familiarity with basic finance, accounting and statistics.  If you feel shaky, you may want to check out the online classes that I have on accounting and financing basics:
1. Accounting class (I am not an accountant, don’t care much for how accountants think about companies and view accounting as a raw material provider.. This class reflects that view): http://people.stern.nyu.edu/adamodar/New_Home_Page/webcastacctg.htm 
2. Basics of finance (present value, a dash of this and that….): http://people.stern.nyu.edu/adamodar/New_Home_Page/webcastfoundationsonline.htm 

2. For this class: If you want to get a jump on the class, you can go to the class web page:
As the schedule stands right now, we will meet on Mondays and Wednesdays from 1.30 pm - 2.50 pm  in Paulson Auditorium, starting on January 29. I would love to see all of you in class for every session, but if you have to miss a class or two, because the classes will be recorded and available on three platforms:
a. My website: The recordings of the sessions, with all of the material (slides, links, other) that I use during the session will be available on the webcast page for the class: 
b. YouTube Channel: There is a second option, if your broadband connection is not that great and you are watching on a Tablet/smartphone. There is a YouTube playlist for this class, where all class sessions will be loaded: https://www.youtube.com/playlist?list=PLUkh9m2BorqlOjmzA9_LYgnzgt0N-2hGS
c. Brightspace: This is the NYU learning management system and the recorded sessions should be accessible from that system as well.
  When you get a chance, check it out.

3. Syllabus & Calendar: The syllabus for the class is available on the website for the class and is also linked  here:
and there is a google calendar for the class that you can get to by clicking on

For those of you already setting up your calendars, it lists when the quizzes will be held and when projects come due. 

5. Lecture notes: The first set of lecture notes for the class is ready. You can either print off the slides, or save them online.  .
Please download and print only this packet on discounted cashflow valuation. The other two packets (yes, there are three…) are not ready yet...

6. Books for the class: First things first. You don’t need a book to get through the class, and if you are budget-constrained, don’t buy any book. If you decide to buy a book, the best book for the class is the Investment Valuation book - the third edition. (If you already have the second edition, don't waste your money. It should work...) You can get it at Amazon or wait and get it at the book store... If you are the law-abiding type, you can buy "Damodaran on Valuation" - make sure that you are getting the second edition. Or, as a third choice, you can try The Dark Side of Valuation, again the second edition, if you are interested in hard to value companies.. Or if you are budget and time constrained, try "The Little Book of Valuation". Finally, if you really want to take a leap, try my newest book, Narrative and Numbers at 
You will find the webpages for all of the books at http://www.stern.nyu.edu/~adamodar/New_Home_Page/public.htm. If you want a comparison of the books, try this link: http://people.stern.nyu.edu/adamodar/New_Home_Page/valbookcomp.html 

7. Valuation apps: One final note. I worked with Anant Sundaram (at Dartmouth) isn developing a valuation app for the iPad or iPhone that you can download on the iTunes store: http://itunes.apple.com/us/app/uvalue/id440046276?mt=8 
It comes with a money back guarantee...  Sorry, no Android version yet…  

I am looking forward to seeing you in two weeks in class. Until next time!

It’s been a week since my last email, and while not a whole lot has happened, I thought I should check in ahead of next week’s class. First, if this is the first email you are reading, then you should catch up with the earlier one, which are available at the link below:
If you are wondering about the logistics (exams, projects etc.), we will start the first class with the syllabus, which will also lay out the themes for the class:
As you go through the syllabus, you will notice mention of a project and you can find the details of that project here:
Once we are through the syllabus in session 1, we will turn to an introductory packet (of about 20 pages). The link to that package is below:
Please have this ready for the first session. The rest of the class will be covered in the lecture note packets, and I sent you the link to the first one last week (but here it is again):

Having drowned you with all of that stuff, let me hit with you some pre-class reading (and I don’t think it is too painful). I don’t do much academic research and am supremely uninterested in writing for an echo chamber. Much of what I have written that is original or different has be initially (at least) on my blog.  I spend the first few weeks of each year, talking about the data that I update on my website:
The first two updates re on my blog. Please browse through them, because they are relevant for class:
  1. Data Update 1 for 2024: The Data Speaks, but what is it saying?
  2. Data Update 2 for 2024: A Stock Comeback - Winning the Expectations Game!
  3. Data Update 3 for 2024: Interest Rates in 2023 - A Rule-breaking Year
  4. Data Update 4 for 2024: Danger and Opportunity - Bringing Risk into the Equation
The first class will be tomorrow (Monday, January 29, from 1.30 pm - 2.50 pm, NY time) in KMEC 1-70. Please do come, if you can. If you are unable to, either because of logistical or health reasons, the class will be carried on Zoom. 
Join Zoom Meeting: https://nyu.zoom.us/j/96754787562 
It’s been a week since my last email, and while not a whole lot has happened, I thought I should check in ahead of next week’s class. First, if this is the first email you are reading, then you should catch up with the earlier one, which are available at the link below:
If you are wondering about the logistics (exams, projects etc.), we will start the first class with the syllabus, which will also lay out the themes for the class:
As you go through the syllabus, you will notice mention of a project and you can find the details of that project here:
Once we are through the syllabus in session 1, we will turn to an introductory packet (of about 20 pages). The link to that package is below:
Please have this ready for the first session. The rest of the class will be covered in the lecture note packets, and I sent you the link to the first one last week (but here it is again):

Having drowned you with all of that stuff, let me hit with you some pre-class reading (and I don’t think it is too painful). I don’t do much academic research and am supremely uninterested in writing for an echo chamber. Much of what I have written that is original or different has be initially (at least) on my blog.  I spend the first few weeks of each year, talking about the data that I update on my website:
The first two updates re on my blog. Please browse through them, because they are relevant for class:
  1. Data Update 1 for 2024: The Data Speaks, but what is it saying?
  2. Data Update 2 for 2024: A Stock Comeback - Winning the Expectations Game!
  3. Data Update 3 for 2024: Interest Rates in 2023 - A Rule-breaking Year
  4. Data Update 4 for 2024: Danger and Opportunity - Bringing Risk into the Equation
The first class will be tomorrow (Monday, January 29, from 1.30 pm - 2.50 pm, NY time) in KMEC 1-70. Please do come, if you can. If you are unable to, either because of logistical or health reasons, the class will be carried on Zoom. 
Join Zoom Meeting: https://nyu.zoom.us/j/96754787562 
We are officially rolling. If you enrolled in the class in the last couple of days, you did miss the first two emails but they are already in the email chronicle, in case you are interested:
Email chronicles: http://www.stern.nyu.edu/~adamodar/New_Home_Page/eqemail.html
This chronicle will be updated at the end of each week to include all emails sent up until then. 

If you were able to make it today’s class, thank you, and the slides that we used for the class should be at the links below:
Introduction to Valuation (Slides for Wednesday’s class): https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/eqsyllspr24.pdf
I mentioned the project for the class, but only in very general terms. You can find the specifics at the link below:
Project: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/eqprojspr24.pdf
A quick note about today's class.  During the session, I told you that that this was a class about valuation in all of its many forms – different approaches (intrinsic, relative & contingent claim), different forums (for acquisitions, value enhancement, investing) and across different types of businesses (private & public, small and large, developed & emerging market).  In addition, I laid out the broad themes for the class - that valuation is a craft, that valuing something is very different from pricing the same thing, that a good valuation is a bridge between stories and numbers and that acting on valuation requires faith.

 After spending some time laying out the script for the class (quizzes, exams, weekly tortures), I suggested that you start thinking about forming a group and picking companies. To get the process rolling, here is what I have done
1. Group: Please do find a group to nurture your valuation creativity, and a company to value soon. If you are ostracized, or feel alone, I will create an orphan list and make sure that you are adopted.
2. Company Choice: Once you pick a company, collect information on the company. I would start off on the company's own website and download the annual report for the most recent year (probably 2019) and then visit the SEC website (http://www.sec.gov) (for US listings) and download 10Q filings. (You can pick any publicly traded company anywhere in the world to value. The non-US company that you value can have ADRs (but does not have to have ADRs) listed in the US but you still have to value it in the local currency and local market. You can even analyze a private company, if you can take responsibility for collecting the information.)
3. Webcast of today’s class: The web casts for the first class are up and running in all of their variations (Zoom recording, downloadable video, downloadable audio and YouTube). You can access them by going to:
4. Lecture Note Packets: Please download the first lecture note packet, when you get a chance. You can either download it as a powerpoint file (though powerpoint bloats file size or as a pdf file)
Powerpoint slides: https://pages.stern.nyu.edu/~adamodar/pptfiles/val3E/valpacket1spr24.pptx
PDF version: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/valpacket1spr24.pdf  

5. Post class test: To review what we did in class today, I prepared a very simple post-class test. I have attached it, with the solution. Give it your best shot.
If you did not get the syllabus, project description and the valuation intro in class this morning, they are all available to print off from this site. I will also be sending out a post class test and solution after each session that should take you no more than 5-10 minutes to do. It is a good way to review the class and I hope that you find it useful. Sorry about the length of this email, but there will be more to come (I promise!).

Attachment: Post-class test and solution.

As promised, the first valuation of the week is upon you, and it is of a company that evokes strong views in both directions, Tesla. I valued Tesla for the first time in 2013, and have valued it every year since, and it still surprises me how much disagreement there is among investors on its future. There are some who believe that Tesla is destined to be the greatest company ever, a beacon of hope that will be worth trillions of dollars. There are others who seem to think of the entire company as a scam, with nothing. Not surprisingly, what you think about Tesla is tied to how you feel about Elon Musk as a person. I have always tried to navigate a middle ground, conceding to the optimists that Tesla is a unique companies that has changed the automobile business and to the pessimists that it is personality-driven and sometime oddly behaved (for a company…I have called it my corporate teenager). To get a sense of my history with Tesla, and where I stand at the moment, take a look at this blog post:
At the time, I valued the company at about $180 and the stock was trading at $197. It climbed to $250 in the weeks after, before collapsing in the last few weeks back to $180 again. On January 24, Tesla released its quarterly and annual reports (link to 2023 10K: https://ir.tesla.com/_flysystem/s3/sec/000162828024002390/tsla-20231231-gen.pdf ) and I updated my valuation to reflect the most update information for both the company and the market (spoiler alert: value barely changed, even though costs of capital dropped significant):
It is a complex company to value, and I have tried to make it a little more user friendly with a master inputs page, where you can make your judgments on each of the key dimensions, from the end game for Tesla (in terms of revenues), to the margins you expect it to earn to its risk, and come up with your valuation of the company. For the moment, you will have to trust me to faithfully take your inputs and convert them to cash flows and discount rates, and if you go to the valuation page, you will see the value per share. If you are interested, check out the story worksheet, where I fill out the story behind the numbers.   Once you are done, please go to this shared Google spreadsheet and enter your numbers:
Note that when I valued the company over the weekend, and used the closing price last Friday as my comparison, and ended up buying the stock. The stock jumped about $10 yesterday, making your target a little higher.
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 on the webcast page for the class. Bringing in the effects of uncertainty and complexity, I argued that these three (bias, uncertainty and complexity) forces are the biggest challenges to good valuation. In fact, they represent the Bermuda Triangle of Valuation, a place where good sense goes to disappear. If you have the time to watch a much, much longer version of this topic, try this:

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 will be starting on the first lecture note packet on Monday. So, please have it downloaded and ready to go.

Attachments: Post-class test and solution.

Each week, I will use the Thursday email to prod, nag and bug you about the project. So, without further ado, here is where you should be this first week:
  1. Find a group: The groups are yours to create and you should try to have at least 4 people in a group and not more than 8 (that limit is for your own protection).  If you are being ostracized and no one wants you,  you can add your name to the orphan list for the class: https://docs.google.com/spreadsheets/d/1ilonvo5nKx8MFLpRw_PuwFdzGzrr-S5jvldVMkUAz4Q/edit?usp=sharing 
  2. Pick a company: This will require some coordination across the group to make sure that you meet the minimum criteria (at least one money loser, high growth, emerging market, service company). In making this choice, remember that you can value any business you want, public or private, small or large, listed in any market. There are at least a couple of entrepreneurs in the class who are valuing their own businesses and  quite a few valuing privately owned family businesses. Once you have picked a company, please enter your company name in the Google class master spreadsheet: https://docs.google.com/spreadsheets/d/1lSuASQzSy3thXAW7ZnsyHgO3hAIV0LbAYIPyfGCDXMc/edit?usp=sharing 
  3. Annual Report: Find the most recent annual report for your company. If you are valuing a private business, just ask for income statements and balance sheets for as long as you can get them (I will assume that you know the owner or better still, you are the owner).
  4. Public filings: If your company has quarterly reports or filings pull them up as well. 
In doing all of this, you will need data and Stern subscribes to one of the two industry standards: S&P Capital IQ (the other is Factset). As MBAs, you should have access to Capital IQ on the Stern Dashboard, but you need to ask for access, I have attached a pdf file that shows you how. 

This is the seventh or eighth email for the class. If you have not been receiving these emails (which means that you are reading this in the chronicles), it is worth noting that I don’t keep an email list for the class. I use the Google groups that Stern creates. In theory, students registered for the class should be on Albert (the NYU official registration/grading site), Brightspace and Google Groups, and the three should be synced, but this is a university. What should be true in theory is not always the case in practice. I can do very little to alter the Google groups. If you are finding yourself locked out of the email list, start with IT, and if they won’t help, I will figure out a way to add you in. If you are a non-Stern student, and have an email address that does not end in@stern.nyu.edu, note that you were assigned a stern email address when you joined this class, and you should be able to find that address. Here is what I got from IT when I asked:
Since you are teaching a Stern course, all your students, exchange and non-Stern, are provided with a Stern account and Gmail.
You can have them all head over to 'start.stern.nyu.edu' to activate their account.

On a completely unrelated note, it may be a little early to be talking to me or the TAs, but here are the logistical details on office hours (for all of us) and the TA review sessions that will occur every week:
My office hours: In person, in KMEC 9-69, and on zoom (with links below)
My office hours:  You can come my office, in person, in KMEC 9-69 or on Zoom, since NYU is not allowing in-person yet, will be at:
12 pm- 1.15 pm, MW: https://nyu.zoom.us/j/97017751425 
I will add on more hours as we get closer to quizzes and exams and project due dates.
TA office hours

Alan and Can will be having office hours as well. I will leave it to them to reach out to you (and they already might have) will details.

Attachment: Capital IQ Access

A few quick notes. The first is that I did put up an in a tools webcast today. It is a very basic webcast on how to read a 10K, using P&G as my example. The links are below:
Downloadable video:  http://www.stern.nyu.edu/~adamodar/podcasts/Webcasts/Reading10Knew.mp4 
YouTube Video:   https://youtu.be/UzUJzdn7c2w?list=PLUkh9m2BorqmRAGzJb5OIvTAKZZu9HWF- 
P&G 10K: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/PG/Reading10KPG.pdf
P&G Valuation (excel spreadsheet): http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/PG/P&Gvaluationfixed.xls
It is a very old webcast,and I need to do a newer version, but I am way too lazy.

Second, for those of you who have already valued Tesla (the first valuation of the week), thank you! For those of you who have been putting it off, there is still time to add your input to the crowd:
If you scroll to the right, and towards the top, you will see the average and median values that the crowd has estimated. When you value a company, it is good to disagree with other people’s stories, as long as you are willing to replace them with your own. My Tesla post in January 2023 evoked a lot of responses and I wrote a post about disagreements that make sense and disagreements that violate first principles:

For those of you who are late to this party, we have run out of beer and chips, but you can read all of the emails that I have sent so far in the class:
Finally, I know that some of you are having trouble finding groups for the project work. I do have a group of two that is looking for additional members. If you are interested, I can connect you with them. 
I hope that you are enjoying your first weekend back at school. I will intrude with a couple of notes. 

1. Teaching Fellows/Review sessions: Just a reminder about the TAs for this class. There are two:
They will have office hours and a review session each week. The time and zoom link for the review sesision is on NYU classes.

3. Newsletter:  The first newsletter for the class is attached. As I said, re is usually not much news in these newsletters. Think of it more as a timeline for the class, telling you where we went last week and laying out our plans for the week ahead. If you get a chance, take a look at it. 

4. Need a group member?: It looks like the groups are jelling. If you find yourself still groupless and do not want to put yourself on the orphan list, please reach out to me. I may be able to find a group for you.

5. Lecture note packet 1: Finally, we will be starting with the first lecture note packet in class on Monday. Please have it with you for class. The pdf version can be found here:
If you have already downloaded it, please make sure that you did get the 2024 version, by looking at the cover page, which should say updated in 2024,

Have a great weekend! 

Attachment: Issue 1 (February 3)


First things first. This week, we will be delving into the mechanics of discount rates, starting with the risk free rate and then moving on to the equity risk premium. They are both central to valuation and we live in unusual times, where the former, in particular, is doing strange things. Second, we will be starting off tomorrow's class with the question of firm versus equity valuation. I am attaching the cash flow table that we will be using for the start-of-the-class test as well. If you get a chance, please take a look at it before you come into class. The question is at the bottom of the page. 

Attachment: Start of the class test for 2/5/24

Today's class started with a look at a major investment banking valuation of a target company in an acquisition and why having a big name on a valuation does not always mean that a valuation follows first principles, with the first principle being We began our intrinsic value discussion by talking about the weapons of mass distraction. If you want to read the blog post I have on the topic, try this link:
After setting the table for the key inputs that drive value - cash flows, growth, risk, we looked at the different ways of approaching valuation (Dividend Discount model, FCFE model, firm valuation) and the roots that they share, and how they result in different estimation processes. Next session, we will continue with a discussion of risk free rate, a foundational number that will drive the rest of our calculations. I have attached a post class test for today, with the solution. 

Attachments: Post-class test and solution.

At the outset, a quick note about office hours tomorrow. Since there ia faculty meeting from 12 pm - 1.30 pm, I will move the office hours to 9 am - 10 am. The zoom link for office hours remains unchanged. In this week, I would like to do a valuation that addresses a critique that I hear of intrinsic valuation, which is that we do not take intangible assets seriously enough, and under value companies with significant intangibles. That may be because the critics who make this argument mistake accounting for valuation, and it is true that accounting has done an absolutely abysmal job on intangible, even as accountants have become more obsessed with bringing intangibles on to the books. To see my response to this challenge, start with this blog post from last year:
As you will notice, the blog post was done at the time Birkenstock, the German company that makes ugly-looking, but comfortable, sandals, was planning to go public in late 2023. You can start with the Birkenstock prospectus:

You can then check out my valuation of Birkenstock:
In that valuation, I do come up with an aggregated valuation of Birkenstock, and then break out how much of that value comes from each of the four intangibles that I see in the company:
1. Brand Name: The company has built up a brand name through a collection of serendipitous events, including the hippies using its as a symbol of their contempt for the establishment in the 1970s, a 16-year old Kate Moss wearing it on a magazine cover in the 1990s and a rebirth as a fad on college campuses in the 1990s. 
2. Great Management: Birkenstock has been a family owned company for a century and a half, and about a decade ago had settled into slow growth maturity. At the time, the family turned the top management over to Olivier Reichert, who has proven to be adept at rediscovering growth, while preserving brand name power. That has allowed the company to find a rebirth of high growth.
3. Free Celebrity Advertising: In a world where companies pay fortunes to social-media celebrities, with little redeeming value, Birkenstock gets free advertising from celebrities who wear its products with no compensation. 
4. The Barbie Buzz: The company got lucky, when Barbie, the biggest gate-receipt movie in 2023, had Margot Robbie wear pink Birkenstock on screen. That caused a bump in sales in the summer, and drew in customers (young women) not traditionally a target market for Birkenstock.
I have fun valuing these intangibles, and I hope you try it too. In fact, a week after my valuation, Birkenstock did go public at a market capitalization of ____ (share price = ), about 10% higher than my estimated value. In the months since, the stock has slid back down to slightly under my valuation, but that proves nothing. I know that my valuation and the price will contaminate your valuation, but I would like you to try your best to do your own IPO valuation (as of September 2023). As with the Tesla valuation, you may be intimidated by what you are trying to do, but there is almost nothing technical in what I do. When you are done, please go to the Google shared spreadsheet:
We started the class with a discussion of structuring a DCF and the different groupings of risk, and why some types of risk matter more than others, before moving on torisk free rates, exploring why risk free rates vary across currencies and what to do about really low or negative risk free rates. The blog post below captures my thoughts on negative risk free rates:
If you want to see my updated perspective on risk free rates, try my blog post from this year, built around the inflation question is here:
I know that the notion that the Fed sets interest rates runs deep, and that you will be able find ways of explaining away contrary evidence, if you feel strongly enough, but I would encourage you to keep an open mind on this question,. Way too much money and resources have been wasted because of the Fed obsession over the last decade to not fight back. Finally, I am included the latest sovereign ratings from Moody;’s and the sovereign CDS spreads .

Attachments: Post-class test and solution.

By now, you should have a company picked, and if so, you can start thinking about at least the first two pieces of your discount rate calculation, a risk free rate and an equity risk premium. 
  1. Pick a company: I know that I have been hounding you to pick a company, but I cannot help myself. Please pick a company soon and when you do, please enter that company into the master list for the class: https://docs.google.com/spreadsheets/d/1lSuASQzSy3thXAW7ZnsyHgO3hAIV0LbAYIPyfGCDXMc/edit?usp=sharing 
  2. Riskfree Rate: Currency is a choice and you can choose to value your company in any currency, though the currency in which your financials are reported is a good place to start. Of course, if that currency happens to have a 100% inflation rate, you may rethink your choice. Once you have the currency, follow the template for computing a risk free rate. If your currency does not have a default free entity issuing it, you may need sovereign default spreads for ratings classes, and you can find them on my website. Here are some useful links:
    1. Government Bond Rates (in local currency): https://tradingeconomics.com/bonds 
    2. Sovereign Ratings: https://www.moodys.com/login?ReturnUrl=https%3a%2f%2fwww.moodys.com%2fviewresearchdoc.aspx%3fdocid%3dPBC_186519%26lang%3den%26cy%3dglobal (You will be asked to register, but it is free… And worth the giving up of your privacy. If you are worried about your privacy, that train has left the station anyway…)
    3. Sovereign CDS spreads: Try typing in SOVR into a Bloomberg terminal, if you can access it. If not, and you have been able to sign on to Capital IQ (I have attached the instructions again), you can get sovereign CDS spreads, though it may take a little exploring.
  3. Equity Risk Premiums: I will be going through my calculation of country risk premiums in class next week, and then moving on to implied equity risk premiums. In case, you are truly bored over this long weekend, you can read an annual update paper that I write on equity risk premiums every year. I am still working on this year’s version, but you can download the 2023 version by going to the link below: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4398884

Finally, if you are still groupless, reach out to me, and I will see if I can match you with a group. That’s about it for the moment.
2/9/24 It is Friday, andI  have put up the webcast for risk free rates on the webpage for the class. 

Risk free Rates
Additional material:

These sovereign CDS spreads and ratings are stale, and if you want updated versions, you can find them linked below. 
It will of course make more sense, if you have picked a company and have a currency to work with, but that is a nag for a different days II hope that you get a chance to watch the webcast!  Finally, I forgot to send you the first weekly challenge on Wednesday. It is the weekly challenge that tests you on valuation consistency, and it is entirely optional. If you choose to do it, the solution will be available online and you can check it. There is no need to submit it back to me. 

Attachments: Weekly challenge #1


1. It is time for some news (not really), but this is the second newsletter for the class.

Issue 2 (February 10)

2. Company choice & groups: I was checking the valuation master sheet:
I notice that a lot of you have not picked a company yet. If you have already and have just not entered the company name (not symbol), please do so. ‘

3. My post on the Mag(nificent) Seven: It is true that seven stocks (Apple, Alphabet, Amazon, Meta, Microsoft, Tesla and NVIDIA carried the market last year, adding $5.2 trillion to their market capitalization and accounting for 55% of the increase in market cap of all US equities in 2023). I just posted on these companies, why they have taken center stage and given that I have a valuation obsession, what I think about these companies today:
I hope that you are getting ready for a Super Bowl party, but as you watch the game, you may want to think about valuation questions. For instance, how much would you pay, if you were a network, for the rights to carry the Super Bowl in perpetuity? (Think of the questions you have to address to do this valuation, starting with whether the football can outlast its CTE challenge and continuing on to whether technology will allow watchers to completely bypass ads…) And if you are a company built around subscribers, say Amazon Prime or Netflix, would you outbid the ad-driven networks because you will use the Super Bowl to sign up new subscribers? Now that I have sowed those seeds that may prevent you from watch Patrick Mahomes throw the ball with his left hand while lying on his back (how does he do that?), two quick loose ends to tie up. 
  • First, I hope that you had a chance to watch the in-practice webcast on the risk free rate ). Second, I sent you a weekly challenge last Wednesday. I don’t know whether you had a chance to try, but it is still not too late. I have attached the solution to that weekly challenge (and the weekly challenge, in case you have no idea what I am talking about). 
  • Tomorrow, we will turn our attention to equity risk premiums, talking about forward-looking estimates and we will then move on to the cost of debt and capital. So, if you are shaky about any of those concepts, I hope that you are rock solid, by the end of the week.l

Attachment: Weekly Challenge #1 Solution


In the session today, we started by doing a brief test on country risk premiums. We started with an assessment of historical equity risk premiums, and why they are not good predictors of future equity risk premiums, before embarking on a discussion of country risk and how to deal with it, and measure it. If you are still confused about the different approaches to computing country risk premium, I hope this picture helps:

We also looked at company risk exposure to country risk, with my core argument being that a company’s exposure to country risk comes from where it dos business, not where it is incorporated:

After a brief foray into lambda, a more composite way of measuring country risk, we ended the session by talking about how you can estimate a forward-looking, dynamic equity risk premium. Post class test and solution attached. Until next time!

Attached: Post class test and solution

company that became the most valuable public company (in terms of market cap) over night, when it had its IPO in 2019. The place to start this valuation is with the Aramco IPO, a document written by bankers for bankers, and hence thoroughly boring:
You can follow up with two posts that I wrote at the time of the IPO:
1. http://aswathdamodaran.blogspot.com/2019/11/a-coming-out-party-for-worlds-most.html
2. http://aswathdamodaran.blogspot.com/2019/11/regime-change-and-value-follow-up-post.html 
Those posts include my valuation of Aramco, putting its value at about $1.6 trillion, roughly where it went public.

Clearly, much water has passed under this bridge in the last two years, and I have the updated numbers for Aramco through 2023 at the link below;
I have updated my Aramco valuation to reflect these updated numbers:

As you look at the what if questions, I would like you to focus on just three variables (my advice is you leave the rest alone):
  1. Expected growth rate; I have set it at the inflation rate, my expectation for how much oil prices will change on a year to year basis
  2. Remaining years: I have used 50, roughly the number of years before the oil under the ground is exhausted
These inputs can change to reflect what you think will happen to fossil fuels or the earth. If you believe that fossil fuel usage can be cut sharply, you can set the growth rate to a negative number and the number of years to less than 50. In short, this is about as pure a play as you can get on fossil fuels as you can get.
  1. Likelihood of regime change: I have set it at 20%, but your political instincts are undoubtedly better than mine and you can adjust this number up or down and come up with your valuation.
  2. Cost of capital: You can change the beta for the company, but this is not the make-or-break number in this valuation.
In short, this is a valuation where the differences we have are really about country/political risk and fossil fuels, not the company. if you feel up to it, please do go enter your updated valuations for Aramco, with the updated market cap of just over two trillion into the Google shared spreadsheet:
I told you at the start of the class that the material for this class would come at you hard and fast, and that it would feel like you were drinking from a hose. I know that some of you are feeling overwhelmed with the valuations of the week, the weekly challenges, the too-frequent emails, the blog posts.. I am sorry if I am drowning you, and I understand that you have other demands on your time, and you may be wondering how to prioritize keeping up with the class. I tried to do that below:






Day of class

1. Come to class (and if you cannot make it, watch the webcast as soon as you can, and certainly before the next class)


Evening of class

2. After the class, review the slides covered, any calculation done during the class and conceptual issues. If you want more detail, download the slides in PowerPoint forma, and read the notes page for the slides. (Links are on webcast page)


3. Do post-class test on webcast page(15 minutes)


Week of class


4. Apply concepts from week to project company (link to project page)


5. Work through a few practice problems from problem set (link) or past quizzes (link)



1.  Do weekly challenge for week (Wednesday)


2. Watch Valuation Tools webcast for week (Friday)


3. Do Valuation of the week (Check webcast page)


4. Read blog posts linked to in emails (Sporadic)


Take the time you have each week and see how far down this list you can get. I would obviously like you to do every valuation of the week and every weekly challenge, but that is unrealistic. In the weeks, you are stretched, you may never get to them. In other weeks, you might. Give it your best shot! That is all you can do.

2/14/24 In today’s class, we started by looking at implied equity risk premiums, why they move over time and how they are related to the prices of risk in other risky asset classes (bond and real estate). We then reviewed the pitfalls of regression betas. They are backward-looking, noisy and subject to game playing. We 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.
One final note. There is no class next Monday and next week’s class (on Wednesday) will be an entirely zoom class. The link is below:
Also, today is Wednesday and I have the weekly challgenge for this week attached, and if you found the discussion of implied equity risk premiums and their relationships with other macro numbers interesting, you may find this challenge worthwhile.

T did send out a template yesterday about prioritizing what you do on this class, and I decided to present it in a slightly different format, which you may find easier to work with.

Busy, Multiple constraints on time including health, family etc.
Time available: <3 hours a week
1. Do post-class tests (10-15 minutes for each class)
2. Review lecture notes for the session (20-30 minutes for each class)
3. Bare minimum on project company valuation (30 minutes/week) & full-fledged catching up (2 hours every three weeks)
4. In quiz week, work through at least three or four past quizzes (2018-2022) (3 hours every three or four weeks)

Busy, Significant constraints on time 
Time available: 3-6 hours a week
1. Do post-class tests (10-15 minutes for each class)
2. Review lecture notes for the session (20-30 minutes for each class)
3. Watch Valuation Tools video each week (30 minutes/week)
4. Get numbers crunched on project company (1 hour/week)
5. In quiz week, work through at least six to eight past quizzes (2015-2022) (5 hours every three or four weeks)

Busy, but class is key priority
Time available: 6-10 hours a week
1. Do post-class tests (10-15 minutes for each class)
2. Review lecture notes for the session (20-30 minutes for each class)
3. Watch Valuation Tools video each week (30 minutes/week)
4. Get numbers crunched on project company & start narrative (1.5 hour/week)
5. Read and try the weekly challenge, with a time limit (30 minutes/week)
6. Give the valuation of the week a quick try  (30 minutes/week)
7.  Review practice problems for each section and try two or three in each section (30 minutes/week)
8. In quiz week, work through at least eight to ten past quizzes (2013-2022) (6 hours every three or four weeks)

Obsessed with this class
Time available: As many hours as needed
1. Do post-class tests (10-15 minutes for each class)
2. Review lecture notes for the session (20-30 minutes for each class)
3. Watch Valuation Tools video each week (30 minutes/week)
4. Get numbers crunched on project company & start narrative + help other group members (2.5 hour/week)
5. 5. Read and try the weekly challenge, without a time limit (1 hour/week)
6. Give the valuation of the week a solid try  (1 hour/week)
7. Review practice problems for each section and try four or five in each section (1 hour/week)
8. In quiz week, work through all past quizzes (1997-2022) (8 hours every three or four weeks)
9. Read stories in financial press, and craft your corporate finance response to each story (continuous)

Attachments: Post class test and solution, Implied premium challenge & data

First things first. By now, I hope that you are in a group and have picked a company. If so, please complete the process by going to the master spreadsheet for the class and input your company name:

At this stage in the class, you should be able to complete three basic tasks related to discount rates, estimating risk free rates, equity risk premiums and betas. Along the way, you have to get comfortable with how to estimate implied equity risk premiums, and to further you on that path, I will be posting valuation tools webcasts on estimating implied equity risk premiums and company exposure to equity risk.  I know that the numbers will start mounting up and that some of you are building or are planning to build your own spreadsheets. For your sake and mine, I would push you not to build your own spreadsheet and use mine instead (or do both, to see if you get similar numbers):
It is not because I have good spreadsheet skills. Far from it, since I have never used an Excel macro and use only bare bones functions. It is because this spreadsheet has 
(a) a structure tied to how we think about intrinsic value in this class, which is very different from how bankers and appraisers think about valuation built around “less detail” and a connection to story. (There is a story sheet built into the spreadsheet that forces you to tie your assumptions to the story)
(b) has industry-average data built into a worksheet. Hence, tasks like building up to a cost of capital are simplified by using lookup tables and estimating numbers like margins can be done with perspective
(c) The spreadsheet has built in safeguards to prevent you from making fatal errors that can handicap your valuation. In fact, the whole list of questions that you will see at the end of the input page are questions that allow you to break the default assumptions, but do so cautiously.
I just created an updated video guide (the one on my webpage is a little old) on how to use the spreadsheet, and it is at the link below:
I am sorry if my voice sounds ragged, but I just got off a long flight and my throat has been scratchy for a couple of days.
This spreadsheet is also versatile and will work for any non-financial service company, small or large, US or emerging markets, young growth or in decline. I have used it to value companies that range the spectrum from Uber in 2013, when it was a young start up, to Bed, Bath and Beyond last year. You are welcome to add detail to the spreadsheet, as long as you don’t break it. Thus, for Peloton, you can break revenues down into equipment and subscriptions, and for NVIdia into Ai chips and the rest of the chip business.  if you feel that there are different stories for each one that you want to tell. Just add tow rows on to of the valuation output page, and make them the revenues from each segment. In fact, the minute you start using it, it is your model, not mine, and you are welcome to claim ownership of it, if that makes you happy. Finally, my push to get you to use my spreadsheet is also purely selfish . This spreadsheet is easy for me to check, since I know exactly where to look to see how your assumptions are playing out and the mistakes that you might have made at the input stage. 

If you have a financial service company (bank, investment bank, insurance company), the spreadsheet above will not work well. Instead, try this spreadsheet:
It is a dividend discount model, but one with enough flex built into it that you can use it to value a growing bank that may not currently be paying dividends. A little later in the class, I will offer you a variant of a free cash flow equity model built just for banks, but for the moment, the dividend discount model will do. 
This week in class, we moved from risk free rates to looking at equity risk premiums and beta. This week, I have added two tools webcasts.

1. Implied Equity Risk Premiums
If you are intrigued or curious or even just bored, I have attached the most recent implied ERP calculation from the start of February 2024, and you can try updating it for where the index and rates are now.
2. Company Equity Risk Premium
If you remember, we started this discussion in class by looking at how to measure company risk exposure to country risk, using Embraer, Ambev and Coca Cola, using revenue weights, and then looking at Royal Dutch, where we used oil production weights. In this week’s valuation tool’s webcast, I look at estimating a company’s risk exposure to country risk.
Webcast: https://youtu.be/D3IGn6tH03c?list=PLUkh9m2BorqkNIdjpZY2kI0qzRbEv5F5L
Slides: https://people.stern.nyu.edu/adamodar/pdfiles/blog/ERPforCompany.pdf
Supporting data: https://www.stern.nyu.edu/~adamodar/pc/datasets/ERP&GDP.xls
Of course, the table you see in this webcast with GDP and ERP is an old one, and you can get the updated version here:
Give it a look, when you get a chance. 

Finally, I know that the quiz is not until February 28, but just in case you get the urge to start working on these quizzes (you should be able to do problems 1 and 2 on most of the recent quizzes),  I have a webcast that I have put together where I take you through the material that will be covered on the quiz. It is about 35 minutes long and it may help you get ready for the quiz (or not)… 
Webcast: http://www.stern.nyu.edu/~adamodar/podcasts/Webcasts/valquiz1review.mp4
Slides: http://www.stern.nyu.edu/~adamodar/pptfiles/val3E/valquiz1review.pptx
The past quizzes are at the links below:
If the links don’t work, try a different browser.

Last week, we continued on our discussion of discount rates by looking at how best to estimate the equity risk premium. This coming week, we have only one session on Wednesday, and it will be a zoom session. In that session,  we will complete the discussion of cost of capital, and start on the meat and potatoes part of valuation, which is cash flows.

Attachment: Issue 3 (February 17)

As you can see from the heading, this is an email to all my classes, and it is about how to collect data, without getting overwhelmed by it. In particular, I want to focus on, and provide some help on data from three sources: the company itself (annual reports, financial filings), Capital IQ (a database of all publicly traded companies, with immense amounts of accounting and market data on each) and the physical Bloomberg terminals that are in the business school:
1. The Company: About 75% of the information, perhaps more, still come from annual reports and financial filings made by the company and the best source for this information is in the original documents (rather than on online sources, no matter how sophisticated). I usually start by finding the company’s webpage, going to the investor section and finding the most recent annual and quarterly report, as well as the analogous financial filings (10K and 10Q for US companies). Download them in pdf format, because you can then use the search box to search for the data you need in the pdf. (Warning: Do not read the annual report, until you are ready in terms of what data you want from the report)
2. Capital IQ: I have sent you many reminders that you have access to S&P Capital IQ. It is one of the premier global corporate datasets, and given how expensive it is to access, we are lucky to have access at Stern. 

Capital IQ Access

If you have not already done so, access Cap IQ, find your company, and it is pretty self-explanatory. I just download into excel the income statement, the balance sheets, the cash flow statement and the segment data, and I replace the default time period (which is the last few years with the maximum period, which can 30 years or more for some companies). You now have all of the historical data that you will need for your company. While you are in Capital IQ, you can also check out the industry grouping that your company is in, screen for other companies like it (by industry group, geography, market cap etc.) and download the data you might need on those companies (I would start with betas, market capitalizations, total debt and cash, but you may need to come back to this list again later in the class). I put together a YouTube video on how to do this, if you are interested:

3. Bloomberg terminal: Find the Bloomberg terminals in the building; for MBAs, there are four on the fourth floor of KMEC, and for undergraduates, there are four  in Tisch 316 (accessed through 305). Since these are scarce, and hogging the machines is not a good idea, I thought I would create a guide specifying not only what you need to print off for your company, as well as where to find data on those print outs. I used BP as my company, and the print out should reflect what the pages should look like now for your company:

Bloomberg Data Guide

You will note that there are only six Bloomberg groupings you should print out, ten pages, in all. 
HDS: Just the first page
BETA: One page
DES: Five pages
DDIS: One page
CRPR: One page
FA: One page
If you play this right, it should take you 10-15 minutes for your company, and you should do it as soon as you can. I know that this is my second email to you today, but to compensate, I will skip emailing you tomorrow and day after. See.. I am a compassionate person. 
Before I dive into the valuation of the week for this week, a reminder again that tomorrow’s class will be on zoom and the zoom link is below:
See you in class at the regular time (1.30 pm - 2.50 pm)

One area where people have rightfully taken issue with me is that I don’t often value banks. That is true, and it is not because I want to avoid them for being difficult, but because they are boring. That said, I thought this week would be a good one to value a bank, since some of you are valuing financial service companies. The bank that I chose was JP Morgan Chase, the largest bank in the US and the one with the most visible and high-profile CEO in Jamie Dimon. In case you are on the watch out for bias, I do own shares in JPM but as a customer (a positive bias), I absolutely despise its service (a negative). You can read my valuation narrative in this file:
You can download the updated financials for the bank at this link:
You can also download my valuation of JPM at this link:
The spreadsheet I use is the divginzu spreadsheet that I sent you a link for last week (if you downloaded it then, please download it again, since I tweaked a few details). If you get a chance, try your hand at valuing JPM and enter your value into the Google shared spreadsheet:
‘I know that you don’t have much time, but this is truly one of the simpler valuations that you will see. Give it a shot! 
interested in getting updated default spreads (on the cheap or free), try this site:
Click on PBR and that link will give you end spreads, they do update the numbers monthly, but seem to do an awfully poor job of making the spreadsheet findable. You can also try the St. Louis FRED and find updated on seven major ratings classes (AAA, AA, A, BBB, BB, B, C and lower) updated daily. Neat, right? You can get the spreads from Bloomberg as well, using the FIW function, and tweaking the choices to show all corporate spreads.

We then started on our discussion of free cashflows, with an examination of the differences between free cash flows to equity and free cash flow to the firm. If you are still confused, I do have a post on free cash flows that I did a couple of years ago that might help:

A reminder again that we will be back in class on Monday and that your quiz is next Wednesday. No new weekly challenge this week, but please work on the one that I sent you last week. On the quiz front, please remember that all past quizzes and solutions can be accessed here:
The review session links are below:
Slides: http://www.stern.nyu.edu/~adamodar/pptfiles/val3E/valquiz1review.pptx
 As you get ready for the quiz, I am sure you will have questions, and if you do, I will have office hours from 4.30 pm - 6 pm on Tuesday (February 27) and the zoom link is below:
I will see you there.  

Attachments: Post class test and solution

I am going to skip the nagging next week, since you have a quiz next week, and your time will be better spent preparing for it. Again, remember that understanding something in the abstract in the classroom is very different from being able to do the same thing in practice. Thus, there is no substitute for working through past quizzes, getting stuck (as you will sooner or later), figuring out how to get unstuck and solving problems. Watch the quiz review along the way and don’t forget to test your self too. Here is a rough guideline on how to approach the past quizzes:

My advice on the quizzes is that you start with the most recent quizzes and work backwards, and with time constraints in mind, here is what I would recommendL
Time constraint severe: Do most recent two quizzes with solutions as crutch, Do prior two with solutions as a fall back and take two quizzes without looking at solutions and with 30 minute timer.
Time constraint average: Do most recent three quizzes with solutions as crutch, Do prior three with solutions as a fall back and take three quizzes without looking at solutions and with 30 minute timer.
Time constraint not binding: Do most recent four quizzes with solutions as crutch, Do prior four with solutions as a fall back and take  four quizzes without looking at solutions and with 30 minute timer.
What time constraint? Work through every quiz since 1998 and I hope that you come out with your sanity intact. 
On the earlier quizzes, you will notice that I don’t provide an ERP in problems, and that 5.5% shows up in the answer. That is because I expected people to look up the ERP in their lecture notes, and it was roughly 5.5% then, but I have learned my lesson the hard way and provide the ERP in the problem in recent year. Also, some of the earlier quizzes have questions on growth and that will not be part of your first quiz. So, pick your battles wisely and don’t freak out. 
I know that you have big and fun plans for the weekend (like getting ready for the quiz) and it is my job to ruin them. If you feel the urge to catch up on your project, I am going to give you the capacity to do so by getting trailing 12-month data on your company:
The most productive use of the webcast is to download the most recent annual and quarterly reports for your company and work with your company’s numbers. You may get lucky, if your company has a calendar year-end and has just reported its fourth quarter 2021 numbers, in which case your most recent 12 months and the most recent fiscal year will match. If you do have access to S&P Capital IQ (gentle nudge to get that access as soon as you can), you can get trailing 12 month numbers. The other plus of Capital IQ is that you can get historical data for your company in any currency you want.  Also, if you are having trouble downloading off the links that I send you, try switching browsers. For some reason, in the last year, Google Chrome has been acting up on downloads from my site. No idea why!

You are probably preparing for the quiz (or should be) and I don’t want to intrude for too long, but the latest newsletter is attached.

Attachments: Issue 4 (February 24)

2/25/24 Hi,
In tomorrow’s session, we will continue on the path of estimating earnings and getting to cash flows. Along the way, we will have to deal with leases, R&D, one-time charges, accounting malfeasance and other potential pitfalls. Nothing that we do is particularly difficult or hard to understand, but the details will pile on top of each other. Just to get you ready, you may find my latest data update post for 2023 relevant:
It looks at the profitability of companies around the world in 2023, and tries to draw lessons. On Wednesday, your will be taking the quiz in the first 30 minutes of class, and we will have class after th quiz.  Also, the quiz is open book, open notes and you can use your iPad/Tablet/laptop to access the lecture note slides, but not as working devices (no open spreadsheets). If you want all quizzes that I have given from 1997 to 2023, you can get them at the links below:
I think it is over kill, but whatever makes you happy. Finally, I will have two extra office hours on Tuesday, and I have scheduled it for 4.30 pm - 6.30 pm, New York time. The link to Zoom is here, and I will see you there:
Time: February 27, 4.30 pm - 6.00  pm, NY time
Join Zoom Meeting
See you tomorrow in class! 
I know that there is some confusion about the quiz this coming Wednesday and I take the brunt of the responsibility for this development, as some of the rules on the webpage for the class reflect times past, not that long ago, when people bought or printed physical copies of the lecture notes and used abacuses to do calculations. So, at the risk of creating more confusion, here are the final rules (and since I have pope-like status on this front, these override all existing rules and can be amended and altered only by me):
1. Quiz LogisticsThe quiz will be in-person in the first 30 minutes of class (1.30 - 2 pm) on Wednesday, in 1-70 for everyone in the class.  If you have signed up with the Moses Center for additional time or other accommodations, please go to the Moses Center to take your quiz. There will be class after the quiz. So, if you finish early, you can take a quick break but come back for the rest of the class. I will try to make it riveting!
2. Quiz Coverage The quiz will cover everything through cash flows (intro packet + Packet 1 through page 145),  but will not include growth. Note that some of the earlier quizzes do have questions about growth that you can ignore for this quiz,
3. Quiz rules: It is open book, open notes, but remember that with only 30 minutes to do the quiz, you cannot afford to be looking for equations or answers to questions in the notes during the quiz. Since many of you have your slides on tablets or on a PC, you can use either device to look at your notes, but not to use Excel, Numbers or any other laptop tool in your work. Please bring your calculators to the quiz with you, and if you have your calculator on your device, you can use it, but just as a calculator. 
4. Quiz work: The quiz will be four pages long, with one question on each page, and space below to answer the question. Show your work in that section, rather than on scrap paper,, since I will be grading the quizzes (don’t harass the teaching fellows, since they bear no responsibility) and I give partial credit. Since I want to give you credit for things you know, showing your work in a neat and orderly manner. 
5. Missing the Quiz: If you will be missing the quiz, let me know ahead of the quiz. While you may not receive an acknowledgement, I will check after the quiz to make sure that I have heard from you ahead of the quiz, if you missed the quiz. If you do miss the quiz, the 10% will get reallocated over the rest of the exams in the class. So, if you miss quiz 1, your second and third quiz will be worth 12% apiece, and your final will be worth 36%. You will also lose the option of having your worst quiz score replaced by the average. 
Finally, if you are having trouble opening the past quiz links, try a different browser.
We continued our discussion of earnings and cash flows, starting with an examination of how best to update earnings and correct them for the mistreatment of some financial expenses as operating expenses (leases were the biggest, but accounting has come to its senses) and some capital expenses as operating expenses (R&D is a prime example)  We then dealt with some final issues on earnings, including the tax rate to use in computing after-tax cash flows and dealing with money losing companies. In the process, we did look at what to do about accounting fraud, and while the answer is not much, there may be a role for forensic accounting. To be honest, most forensic accounting books are designed for valuation morticians, but here are a couple that you may find useful:
  1. http://www.amazon.com/Financial-Shenanigans-Accounting-Gimmicks-Reports/dp/0071703071/ref=pd_sim_b_8
  2. http://www.amazon.com/Creative-Cash-Flow-Reporting-Sustainable/dp/0471469181/ref=pd_sim_b_2
I know that I did not send a weekly challenge last week, but I have added one to this email and it may be worth your time trying it, especially if you are still grappling with capitalizing leases and R&D.  We then moved on to examine broad questions about what to include in capital expenditures and working capital.  Next session, we will start with a quiz in the first 30 minutes of class, before putting closure on cash flowsand starting up on growth rates. Another reminder is that I will be having office hours tomorrow, on zoom, from 4.30 pm - 6  pm, NY time. 

Attachment: Post class test and solution

First things first! The quiz is tomorrow from 1.30 -2.00, and there will be class afterwards. If you signed up with the Moses Center for extra time and/or accommodations, you will be taking your exam at the Moses Center. They have the exam already, and you should be all set. On a different note, today is the day that you get the valuation of the week. Rather than hit with you another company valuation, I thought I would try something lighter.So, let’s have some fun. I have always been a Star Wars fan, and like other fans, I was a little worried when Disney bought Lucas Films (and with it the rights to the Star Wars franchise) for $4 billion a few years ago. Disney was explicit about its plans at the time, and said that it planned to produce three major Star Wars movies, continuing the story, and three side stories (like Rogue One) filling in history. I went to see Force One in December 2015 and wrote this post on my blog about what I thought the value of Star Wars was at the time;
I assigned a value of almost $10 billion to the franchise, with a big chunk coming from the side products (toys, software, apps) coming from the franchise. You can download the spreadsheet that contains the valuation here:
When I wrote the post, Force Awakens had been out in theaters only a few days and I estimated box office revenue of $2 billion for the movie. Rogue One, of course, had not been released yet and I estimated revenues of $1 billion. Force Awakens is now one for the history books, with global revenues of just over $2 billion and Rogue One crossed the $1 billion threshold.
Updated box office for Force Awakens: http://www.boxofficemojo.com/movies/?id=starwars7.htm 
In addition, the eighth Star Wars movie has come and gone, with the Last Jedi, as has the next add on movie on Hans Solo:
Updated box office for The Last Jedi: https://www.boxofficemojo.com/movies/?id=starwars8.htm 
The final movie in this trilogy, The Rise of Skywalker came out in 2019. You can get the updated box office numbers for all of these movies here:

In addition, it looks like Star Wars is going to be central to Disney Plus making inroads into the streaming business. The Mandalorian was the most-watched series three years ago on Disney Streaming and has been followed by other series, well watched but very expensive to make. That adds a value stream that did not exist a few years ago. Armed with this additional information, try to reestimate the value of the Star Wars franchise. It may be only tweaks but give it your best shot. And since this is a Star Wars post, might as well end with some good advice from Yoda: Have fun

I hope that you have put the quiz behind you, good or bad. I will let you know when the quizzes are ready to pick up, and send the solutions and the grading template. In the session, which occurred after the quiz, we started on our assessment of growth rates, starting with historical growth rates, before looking at analysts estimates of growth and why they do not carry more predictive power (given that analysts often are immersed in company-specific knowledge and have access to management). Next week, we will look at tying growth to two fundamental questions: (1) how much companies reinvest and (2) how well. The way we measure these can vary depending on whether you look at earnings per share, net income or operating income. The weekly challenge for this week, if you feel up for it, centers on fundamental growth. Try it, if you get a chance.

Attrachment: No post class test

2/29/24 I know that it is late and that you probably have left the school already, but the quizzes are done and can be picked up.  Here are the details on how you can pick them up and check your score:
  1. Where? The quizzes are on the ninth floor of KMEC. As you come off the elevator and before you get to the door leading into the offices, look to your right and you will see a table. The quizzes are on the top shelf.
  2. How? They are in alphabetical order, face down and sorted neatly. Please just take your quiz, don’t browse and do not mess with the sorted stacks. I have cameras installed that are watching you at all times and drones ready to attack, if you try!
  3. Score check: Once you get the quiz, please take a look at the attached solution. It includes my grading template.   If you feel that I have been unfair to you, you can either come into my office or take a picture of the section of the quiz with which you have a grading issue and send it to me. 

If you are unable to pick up your quiz, your score should be accessible on Brightspace as well.

Attachment: Quiz and solution

I am probably pushing my luck, since I have taken up so much of your time this week, with the quiz. If you feel the urge to catch up on your project, I am going to give you the capacity to do so by posting two in-practice webcasts:
1. Converting leases to debt: I have also posted a second webcast on converting leases to debt which takes you through the process of which numbers to use in this conversion and how to deal with loose ends (like the lump sum that is often given for past 5 years).
2. Converting R&D to capital expenditures: We have net covered how to capitalizet R&D expenses in class yet, but you can get a jump on the process with this webcast. I use Microsoft from a year gone by to illustrate this concept:
If you get a chance, please watch one or both of these webcasts.

This may be your weekend to forget valuation, but I am afraid that I have to intrude. The most recent newsletter is attached. A reminder also that your quizzes are ready to pick up on the ninth floor of the finance department. 

Attachments: Issue 5 (March 2)

In the coming week, we will complete the last pieces of intrinsic value, talking about growth in all of its forms tomorrow and the terminal value on Wednesday. This is hard to believe but we are close to half way through the semester. So, if you have not picked a company, you should. And if you have not entered the company’s name into the master list, please do so:
 If you have, picked a company you should have the financials. If you have the financials, you should be working on the valuation. And once you do, using my spreadsheet can speed things along:
https://pages.stern.nyu.edu/~adamodar/pc/fcffsimpleginzu.xlsx (if non-financial)
https://pages.stern.nyu.edu/~adamodar/pc/divginzu.xlsx (financial)
 I think you get the picture.
If today’s class seemed to pass by in a blur, it is because we covered a lot during the class. We began with a look at why equity research promises so much and delivers so little, and in that context, I thought you might find it interesting to see the analysts who showed on the Institutional Investors’ All America Team last year:

We then moved into  discussion of fundamental growth rates, starting with non-cash net income and then moving on to operating income. I mentioned that incredibly boring paper that I have on accounting returns, and if you want to be bored and perhaps sleep better, here is the link:
It is guaranteed to work better than a sleeping pill!

 We then looked at the more general question of how to estimate growth and cash flows, when margins are changing. In particular, I used Airbnb’s IPO valuation as an illustrative example. If you are interested in getting more detail on my reasoning, you can try this post that I had at the time of the IPO:
In the next session, we will look at the terminal value, the elephant in the room that drives the final valuation of a company. If you are interested, you may want to read a series of five posts that I had on terminal value that will frame the discussion in class:
Hope you find it useful. Post class test and solutions attached! 

Attachments: Post class test and solution

At this point, you are hopefully turning your attention to valuing your company, and I do believe that your focus should stay there. If you feel the need for distraction, and you are a sports fan, I decided that we should spend this week on a “fun” valuation”. This is a throwback in time, but it is a valuation and pricing that I did of the Los Angeles Clippers, when Steve Ballmer paid $2 billion for the team. I explain how I value the Clippers and how I would value any sports franchise in this post:
You can find my valuation of the Clippers in this link:
Since that valuation and post, the pricing of sports teams has continued to surge, and last year, I wrote another piece on sports franchises, in particulars, and sports finance, in general, after Mbappe got a billion dollar offer (that he turned down) to play soccer in Saudi Arabia:
In the post, I value the Washington Commanders (or the Washington Swampcreatures, as I prefer to call them, as a Giants fan).
You can do one of three things with these posts:
1. Ignore them entirely (and I understand)…
2. Browse through them, if you are interested, and perhaps check out my Clippers and Commanders valuations
3. Pick your favorite sports team (IPL, Premier League, NFL, NBA or MLB) and try to price the team. You can get the raw updated data on franchise pricing from Forbes:
NFL: https://www.forbes.com/lists/nfl-valuations/?sh=6ecc29821738
NBA: https://www.forbes.com/sites/mikeozanian/2023/10/26/the-most-valuable-nba-teams-2023/?sh=3a2ca122209d
MLB: https://www.forbes.com/mlb-valuations/list/ (I especially liked this pricing list)
NHL (I know… I know): https://www.forbes.com/sites/mikeozanian/2023/12/14/the-most-valuable-nhl-teams-2023/?sh=a5d775436b60
Soccer (Premier League and Europe): https://www.forbes.com/lists/soccer-valuations/?sh=389dbff7198b
IPL: https://www.forbes.com/sites/mikeozanian/2022/04/26/indian-premier-league-valuations-cricket-now-has-a-place-among-worlds-most-valuable-sports-teams/?sh=6a1e40c23951
Note that Forbes uses the word “valuations: to describe what it does, but these are all pricing. My most valuable team will always be the Yankees, but that’s my bias speaking up. 

In today’s class,  we spent some time on the key value drivers - revenue growth, operating margins and sales to capital, before tying up loose ends on terminal value, with the dangers of waiting too long to put your company into stable growth and the importance of long term excess returns in determining terminal value. If yo do get a chance read the posts that I have on terminal value that I sent links to, in my post from Monday (March 4). In the last part of the company,  w looked at building a DCF model, and how your choices of which cash flows to discount, the discount rate to use and the growth rates/patterns for a business have to be tailored to the firms. 

Attachments; Post class test and solution, Weekly challenge & Solution

 I hope that you are also moving forward on your project. As I mentioned at the start of the class, I will be glad to give you feedback (without a grade) on the intrinsic (DCF) value for your company, if you can get your DCF spreadsheet to me by March 29. While I will not be able to tell you whether your valuation is right or wrong, I can at least tell you whether there are inconsistencies. If you are ready to turn in your DCF for review, please make sure that you send the spreadsheet as an attachment in an email to me, and use “My Perfect DCF” in the subject. (Please, please do not try to change this subject to something else (like my imperfect DCF), since computers don’t do well with nuance).

If you are just starting, I thought I would give you a boost. First, I will not be giving any credit for excel spreadsheet building skills. In fact, I would rather than you focus on valuation and less on spreadsheet building. If you are valuing a non financial service company, the only spreadsheet you will nee is the following;
The spreadsheet comes with add-ons that you may or may not need. Thus, there is a lease conversion worksheet, but if your company follows IFRS or GAAP can capitalizes leases, you can turn it off. There is an option worksheet that converts employee options into a value and recomputes value per share. It also has all of the industry averages (US and global) in it, as worksheets. Use what you want, turn off whatever you do not. To help you in using the spreadsheet, I have this video guide that I recorded on how to use the spreadsheet. 

If you are valuing a bank, you can try the dividend discount model that I have online:
This one does not come with a YouTube video (and I may do one soon), but it is far simper. These valuations will give you at least a baseline value, and you can revisit it once we talk about valuing banks in class. If you really, really want to build your own spreadsheet, you can do so, but remember my admonition about less is more and please do not (under any conditions) use a spreadsheet you picked up at an investment bank, since fundamental flaws will be baked into it
I have two valuation webcasts for this week. 

One relates to accounting returns on capital and how best to estimate them for your company, using Walmart as my example:
Webcast: https://www.stern.nyu.edu/~adamodar/podcasts/Webcasts/ROIC.mp4 
Walmart 10K (2013): https://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/webcasts/ROIC/walmart10K.pdf
Walmart 10K (2012): https://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/webcasts/ROIC/walmart10Klastyear.pdf
Spreadsheet: https://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/webcasts/ROIC/walmartreturncalculator.xls
An updated version of the return calculator is attached.

Also, as you well know, or will find out soon enough, much of your value per share for your company will come from the terminal value, and I have a webcast on checking terminal value that I hope that you get a chance to look at. 


The newsletter for this week is attached. At this stage of the class, I hope that you have not just picked a company but are working on your intrinsic valuation. 

Attachment: Issue 6 (March 9)

This week, we will look at the loose ends in valuation, starting with cash and cross holdings and then moving on to stock-based compensation and how it affects the intrinsic value that you attach to companies. If you are interested in getting a jump on the latter, you can try this blog post I have on the topic:
Enjoy your Sunday, 
During today's session we finished started on the loose ends in valuation, with cash and cross holdings first, and then moving on to other assets. The simple rule to follow is to make sure that you neither double count nor entirely miss assets owned by a firm.  We then moved on to look how complexity plays out in valuation, before ending with questions of what to include in debt, with different rules on debt in your cost of capital calculation and debt that you net out from firm value to get to equity value.

The DCF is due by two weeks from this Friday (March 29), for feedback, if you want it. If you can get it in earlier, all the better. A few notes on the submission:
1. Individual, not group: This portion of the submission can be done individually and should be done individually rather than as a group, The feedback is specifically for you. As I mentioned in my emails from last week, yPlease try to use this spreadsheet, since it will make it easier for me to stay with your story and give you meaningful feedback:
2. Submission content: An Excel spreadsheet will do, with your story in the story worksheet (that is part of the spreadsheet) and any specific assumptions
3. Submission subject: Use “My Perfect DCF” in your subject. (Please don’t deviate from the script. It is to make sure that it gets into the right smart mailbox, and computers have no sense of humor)
Remember that this DCF is for feedback, not a grade, but work on it as if were your final valuation. That way, the feedback will be more focused and perhaps more useful. 

 To put a bow on this part of the class, I have a blog post that you may find enjoyable about dysfunctional DCFs. 

Attachments: Post class test and solution

I know that you are woking on your valuation and have little time to spend on a different valuation. That said, I am usingUber as my example to illustrate the connection between stories and numbers in class, and I thought it would make sense to go back to my original post on valuing Uber:
After pushback from Bill Gurley (please read his takedown of my total market assessment), I came back with a post on how to incorporate feedback into the valuation:
At the end of 2014, I created a crowd valuation of Uber, where I let readers pick their own stories for Uber and valued each story:
I valued Uber almost every year in the following years, and when it went public in 2019, I value Uber ahead of its IPO:
The IPO did not go well, and in March 2020, I bought Uber, when it hit a low of $14/share in the midst of COVID, and I have held it since. The stock recovered in the second half of 2020, and it has tested me in the years since, but it’s been on a run in the recent past, and it now trades at over $80. Put simply, it seems to have finally found a business model (15 years after founding.. And tens of billions of dollars in capital later) that works. 

Rather than give you my updated valuation, I am going to give you the updated  financials for Uber at the link below:
You can update my 2019 valuation to reflect the updated information and then enter the Google shared spreadsheet:
In today’s class, we started by looking at stock-based compensation, and why it is an expense that should be treated as one, notwithstanding arguments about it being non-cash. We then started on story telling in valuation, and the process, using Uber in June 2014 as an example. In this week’s challenge, I look at stock-based compensation:
Do take a look because it will clear up some questions you have about the mechanics.

Attachments: Post class test and solution

 I know that your project DCFs are not due until two weeks from tomorrow, but if you decide to work on your DCF and even turn it in early, here is some general guidance. I will try to get them back to you as soon as I can, and if your submission is not exactly at the deadline, you will get your feedback much more quickly. (If I get all 400 valuations at 5 pm on March 29, it will be first in first out… And that may cause some waiting…)
  1. You will be turning in a spreadsheet, not a report. 
  2. Your submission will be individual, not as a group.
  3. You will be submitting to me, with your excel file as an email attachment. Please include the words “My Perfect DCF” in the subject.
  4. You are welcome to use any of my spreadsheets. The most forgiving and versatile of my spreadsheets is http://www.stern.nyu.edu/~adamodar/pc/fcffsimpleginzu.xlsx and it should work for almost any non-financial service firm. I  It has updated equity risk premiums,  for both the US and other countries and both US and global industry averages. More important, it has a story worksheet as part of it. Please use it to tell me your story for the company and connect with the inputs. f you are working with a bank or financial service company, try this spreadsheet: https://pages.stern.nyu.edu/~adamodar/pc/divginzu.xlsx.
  5. Each of your valuations tells a story. Try to make it explicit and built it into your spreadsheet. In my spreadsheet, I have set up a worksheet to allow you to do this. Take advantage of that worksheet.
Don’t put too much pressure on yourself. This is only for feedback. Try your best.

If you are ready to relax and watch some media, I have a couple of great shows for you. 
  1. The Dropout, the Netflix series about Elizabeth Holmes. 
  2. WeCrashed, on Apple TV
If you prefer reading,
  1. Bad Blood, by John Carreyrou (he is the WSJ reported who asked the question, “does it work” in October 2015, and set in motion the collapse
  2. The Cult of We (about WeWork)
I had blog posts on both companies in real time:
I know that you are either on your way to enjoying spring break, or already there. I had promised you a week’s break, and this will be your last email until next Saturday, but I have two notes before you leave:
1. Valuation Tools Webcast:  If you are confused about employee options and how they affect value, you may also want to watch this webcast that I put together on doing this in practice. I used Cisco, a monster option granter, to illustrate the mechanics. You can find the links below:
Webcast: https://youtu.be/-sGw4oLPTsM 
Cisco 10K: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/webcasts/EmployeeOptions/cisco10K.pdf
Spreadsheet for options: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/webcasts/EmployeeOptions/ciscooptions.xls
I hope you get a chance to watch the webcast and that you find it useful. 

2. Quiz 2 Preview: The quiz is not until April 1, a week after you get back from break, but if you want to get an early start, I thought I would send you something to get ready:
We have covered almost everything that will be on the quiz. 
Welcome back from spring break and we have quite a week ahead of us. So, to bring you up to date, here are a few things:
1. Newsletter for the week: In case you have lost track of where we are in the class, try the attached newsletter.
2. Quiz on April 1: The quiz is coming up in little more than a week. It would make sense to start reviewing material as quickly as you can. Here are some links that may help:
3. DCFs for review: If you want feedback (not a grade) on your DCF, please send your DCF to me by next Friday (March 29). In case you have forgotten what this is all about, here are the instructions:
  1. You will be turning in a spreadsheet, not a report. 
  2. Your submission will be individual, not as a group.
  3. You will be submitting to me, with your excel file as an email attachment. Please include the words “My Perfect DCF” in the subject.
  4. You are welcome to use any of my spreadsheets. The most forgiving and versatile of my spreadsheets is http://www.stern.nyu.edu/~adamodar/pc/fcffsimpleginzu.xlsx and it should work for almost any non-financial service firm. I  It has updated equity risk premiums,  for both the US and other countries and both US and global industry averages. More important, it has a story worksheet as part of it. Please use it to tell me your story for the company and connect with the inputs. f you are working with a bank or financial service company, try this spreadsheet: https://pages.stern.nyu.edu/~adamodar/pc/divginzu.xlsx.
  5. Each of your valuations tells a story. Try to make it explicit and build it into your spreadsheet. In fact, there is a story to numbers worksheet in the spreadsheet that you should use to make your story explicit.

Attachments: Issue 7 (March 23)

We started class today by finishing up the discussion of connecting stories to numbers, and how critical it is to keep the feedback loop open. We also looked at how stories can change or break. In that context, you might find this post that I had on how earning reports change stories useful:
We then looked at valuing a simple company (Con Ed) with a simple model (stable growth DDM) and how a market crisis can change value (with 3M). We then moved on to with a, model to value an index (the S&P 500). If you are interested in an updated version, where you can change the numbers try this link:
We then looked at valuing young companies, with the focus on Amazon. If you are interested in how best to adapt valuation models to value companies on the dark side. Specifically, we examined how best to value young companies with limited information. If you are interested, try this paper on valuing young companies:
I also have a blog post that you may find relevant for today’s discussion on how dilution in future years is already incorporated into value:

Next Monday, we will move on to the second quiz for the class. In case you are nervous about it, here are some specifics:
1. Quiz time and logistics: The quiz will be on Monday, April 1, in the first 30 minutes of class (1.30-2 pm) and there will be class after the quiz.
2. Content: It will cover the mechanics of DCF, starting with growth rates and terminal value and extended into the loose ends of valuation and the versions of the DCF we have used on the dark side. 
3. Review for the quiz: The links to the review for the quiz and the past quizzes are below:

Attachments: Post class test and solution

As markets have soared, talk of bubbles has also shown up, often from the same people who have been warning us of bubbles for most of the last 15 years. You may want to start this valuation by reading this post I had on bubbles and bubblers about a decade ago:
Once you have got through the post, try these four news stories as starters for the bubble talk today:
  1. https://www.wsj.com/finance/stocks/a-frothy-market-misses-vital-bubble-ingredients-510efbaf
  2. https://www.cnbc.com/2024/03/07/stock-market-bubble-analysts-explain-why-theyre-not-worried.html
  3. https://www.cnn.com/2024/02/28/investing/premarket-stocks-trading/index.html
  4. https://www.economist.com/finance-and-economics/2024/03/11/is-the-bull-market-about-to-become-a-bubble
Finally, to prepare for an intrinsic valuation, take a look at three sources of raw data:
1. On S&P 500 historical earnings and dividends: https://pages.stern.nyu.edu/~adamodar/pc/blog/S&PEPSMarch2024.xlsx 
2. On S&P 500 buybacks: https://pages.stern.nyu.edu/~adamodar/pc/blog/S&P500Buybacks.pdf 
3. On S&P 500 analyst forecasts of earnings for the future: https://yardeni.com/charts/sp-500-earnings-squiggles-annual-quarter/
My intrinsic valuation of the S&P 500 index is in this very simple (perhaps even simplistic) spreadsheet:
There are three key inputs you can disagree on:
1. The future level of the T.Bond rate (it is 4.24% right now, but could go higher or lower)
2. The ERP that you think is a fair one for investing in the S&P 500 (there are multiple choices that I offer)
3. Whether you want to take the analyst estimates at face value, or adjust them down (for a recession) or up (if you think that the economy will get stronger)
Having made those inputs, visit the Google spreadsheet and input your estimates and index value:
I know that you have a lot on your plate, but working with this spreadsheet will help you make sense of the often reckless market talk you hear out there

In today’s session, we completed our the challenges in valuing young companies, and then took a look at mature companies in transition, and how you have to value the status quo company and the restructured one to make a judgment on investing in it. We then moved on and looked at declining companies, where your forecasts may have to show declining revenues and margins, and added a twist with distressed companies, where you have to follow up your DCF. In the last part of the class we examined the issues (country risk, cross holdings and currency gyrations) that are part of emerging market company valuations. We will continue and complete packet 1 (for the most part) in the next session. No weekly challenge this week, since you have a quiz coming up. 

Attachments: Post class test and solution

I hope that you have had a good week. I know that some of you have turned your attention to the quiz, which is on Monday, and that is perfectly understandable. In case, you have lost the links to quiz, I have attached them below:
Presentation: http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/valquiz2review.pdf
Webcast: https://youtu.be/VzFkMJm3Qe8 
You can also find all past quizzes with the solutions in the following links:
All past quiz 2s: http://www.stern.nyu.edu/~adamodar/pdfiles/eqexams/quiz2.pdf 
Quiz 2 solutions:  http://www.stern.nyu.edu/~adamodar/pdfiles/eqexams/quiz2sol.xlsx 

For those of you who still have the time to work on your DCF, if you can get me your DCF to me tomorrow, great, but I will leave the submit window open for a few days, for feedback, but only if you want it. When you do submit it, a reminder to enter “My Perfect DCF” in the subject.
I am going to skip my usual valuation tools webcast today, because I think that you have enough on your plate. The valuations for feedback are rolling in, with a 150 coming in overnight, and I am working through them. My weekend is a little crammed, and I may not get to your valuation until next week, and I am sorry. For the handful of you using the dividend discount model, generally to value banks, I do know that you are finding the two net income inputs to be a little confusing, and the spreadsheet values equity in the aggregate rather than on a per share basis. I have updated the version online to clean it up for those limitations:
On a different note, your second quiz is on Monday and you have heard plenty from me about it, but it will be in the first 30 minutes of class, followed by class.  Have a great weekend (even if you have to prepare for a quiz) and see you on Monday! 
Three quick notes. First, the newsletter for the week is attached. Next, if you are preparing for the quiz, I will have office hours tomorrow and the link is below:
Finally, we will be done with packet 1 this coming week and moving on to packet 2. Please download packets 2 & 3 when you get a chance. The  links are on the webcast page, but I have the attached the pdf links below:
Packet 2:  https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/valpacket2spr24.pdf

Packet 3: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/valpacket3spr24.pdf

Attachments: Issue 8 (March 30)

3/31/24 Needless to say, but I will say it anyway, the second quiz is tomorrow in class, in the first 30 minutes of class. I Tomorrow, we will complete the residue of intrinsic valuation, and perhaps will start on pricing On Wednesday, and that will require the second packet of lecture notes which are accessible on the webcast page for the class.The links were in yesterday’s email.  Please download them when you get a chance. See you tomorrow, and until next time!
In today’s session, after the second quiz, we continued with our discussion of intrinsic valuation, by first finishing our discussion of emerging market companies before turning to financial service firms . For decades, we have valued banks using the dividend discount model, simply because getting cash flows is so difficult, but that approach is built on trusting management at banks to behave sensibly (paying out what they can afford to in dividends) and regulators to do the same. For me, that trust was breached in 2008, and I present a way of estimating FCFE for a bank, using investment in regulatory capital as my stand in for reinvestment. Next session, we will wrap up the valuation section and start on pricing. If you are interested in reading more about valuing financial service companies, try this link:
The Deutsche Bank post is here:
For those of you who did send me your valuations, I am working through the list. (I am done with about 250 out of the 400 that I received.

Attachments: Post class test and solution


The quizzes are done and can be picked up on the ninth floor of KMEC. They are on the second shelf (the top shelf has the corporate finance quizzes) and are in alphabetical order. The one question that challenged people was the fourth question, where I asked you to estimate a terminal value, but did not give you a growth rate (at least explicitly). However, I did say that the return on capital would be locked into the the year 3 level in perpetuity. In addition, I gave you information on the reinvestment and after-tax operating income in year 3, which allows you to compute a reinvestment rate, and here is where it gets a little dicey. While we have, for convenience, assumed that reinvestment and growth happen in the same period, I noted in class that reinvestment usually lags growth, and that the growth rate in year n is a function of the reinvestment rate in the previous year. Multiplying the reinvestment rate by the return on capital in year 3 gives you the growth rate (about 3%) in perpetuity and the terminal value. Since it is a tricky concept, I also gave fully credit for the use of an assumed stable growth rate (you can see the 2% and 4% growth rates in the solutions), as long as the reinvestment you estimated was consistent with that growth rate. The solutions are attached 

Attachments: Quiz 2 (Quiz and solution)

In tomorrow’s class, we will shift from packet 1 of the lecture notes to packet 2, and with it, you will see a shift in emphasis in the class from intrinsic value to pricing. That shift carries with it several other changes:
1. Valuation/Corporate Finance -> Data/Statistics: While valuation principles will still matter, you will notice that pricing is about looking at what other people are paying for similar assets, and that requires paying attention to data. That will require statistical skills, as much as valuation skills. So, if your statistics is rusty, this may be a rough ride. If you are interested, I have a short online statistics class that covers everything that we will use in pricing, from summary statistics (averages, medians) to examining connections between variables (correlation, regression) and you can brush up those skills: https://www.youtube.com/playlist?list=PLUkh9m2BorqmXcRzWFbzcjMd7fYErVexF

2. S&P Capital IQ; When valuing individual companies, you are pulling up public information on a single company and it is always best to go to the original source (the company’s financial filings and annual reports). With pricing, you are comparing dozens and sometimes hundreds of companies, and it makes life easier if you have access to a database that is ocmprehensive and easy to work with. S&P Capital IQ meets both requirements carrying every financial data point on all publicly traded companies, as well as market information (pricing, ratios). I had sent out information on how you can access S&P Capital IQ in an email early in the semester, but if you missed that, I am including it again. 
Until next time!


We started the class by setting the stage of pricing companies, contrasting the pricing process with the value process. The rest of the class was our first foray into pricing, with why pricing is so much more common than intrinsic value and how multiples are just standardized prices. We also started on the first steps in deconstructing pricing, with the definitional  tests. Finally, there is a weekly challenge for this week, built around pricing. It is quick to do, but it brings home some of the consistency questions that we talked about in class today.

Attachments: Post class test and solution

4/4/24 I know that you have other things on your plate, but I will nag you about your final project nevertheless. If you have your DCF done, you should have got it back by now, if you have sent them to me for feedback), it is time to think about pricing your company. For the moment, that may just involve computing every conceivable multiple for your company, both equity and enterprise value. Here are a few standards - PE and PBV, for equity and EV/Sales, EV/Invested Capital and EV/EBITDA. You may consider this a waste of time, since many services including Yahoo! Finance compute them for you, but as we noted in class, there are choices that these services make on what to include and exclude in their computations that you may not find palatable.  If you want to get creative, you can also compute pricing multiples specific to your sector. With an oil company, this could be EV/Barrels of Oil in Reserves, with ride sharing companies like Uber and Lyft, EV/Rider and with subscription company, EV/subscriber. Next week, we will take tangible steps to finding comparable companies and comparing these pricing multiples across companies. 
One of the most confusing aspects of multiples is dealing with the variants of value out there: firm value, enterprise value and equity value. In this week’s tools webcast, I look at what the differences are between these different numbers and how our assessments of leases & R&D can change these numbers. Start with this blog post:
Then watch the webcast:
You can download the presentation:
And the spreadsheet that goes through the calculations:
Nothing deep, but if you have ever been confused about the difference between market cap and enterprise value, and why we use one as opposed to the other, I hope that this clarifies things.

Your latest newsletter is attached. Also, I did get a new batch of DCFs for review yesterday, and I will try to get them back to you by the end of the weekend. Until next time!

Attachments:Issue 9 (April 6)

This week, we will expand on our discussion of pricing by diving into specifics, starting with the analytics, on how to use intrinsic value basics to extract the variables that determine each multiple. We will them move on to how to pick comparable and then move through a series of examples, were you will use the tools to assess how to control for differences, when pricing companies. Along the way, don’t forget that pricing is a pragmatic game. If it works, use it. To give you a sense of pricing, I I suggest that you read this excerpt that I found in a guide for appraisers trying to value a hotel on how to do it.
Another valuation rule-of-thumb used in the lodging industry is that each room of a hotel is worth 100,000 times the price of a Coke™ in the on-floor vending machine or in-room mini-bar. More formally:
Value = Coke™ price x Number of Rooms x 100,000
The Edgemore Hotel sells cans of soda for $1.50 in the room mini-bars. Thus, the value of the Edgemore by this “precise" valuation method is:
$1.50 x 300 x 100,000 = $37,500,000
We urge market participants to use this technique judiciously, as some properties seriously "misprice" soda in relation to property. (Really?)
No. This is not a parody but a real technique. If you don’t believe me, read the whole thing:
You may find it laughably simplistic, but in pricing, if it works, don’t fight it.
4/8/24 Hi,
In this session, we continued with our discussion of pricing, starting with the analytics that drive PEG, PBV, EV/EBITDA and revenue multiples. During the session, I played the role of a naive equity research analyst, using sloppy pricing to push buy recommendations on stocks in a number of sectors, based purely on the level of multiples (low PE, low PBV etc.) and asking for pushback. I The bottom line, though, is that most companies that look cheap deserve to be cheap. The key to pricing is finding a mismatch between the pricing and the fundamentals (low PE & high growth, low PBV and high ROE, low EV to Sales and high margins). It is the basis for much of equity research, and takes the form of screens. If you are interested, I have a post that expands on the notion of screening.
Since you have access to S&P Cap IQ, you can try this out in any sector. 

As I mentioned in class, on the third quiz, I will open the option for a delayed version on Wednesday (time to be announced). You don’t have to be on campus to take the quiz, and I will send it to you by email for you take it and return it to me. That option will be available to those who in both my corporate finance and valuation classes, so that you don’t have two quizzes on the same day, or if you are jewish and celebrating Passover. The Google shared spreadsheet to sign up is below:

Attachments: Post class test and solution

4/9/24  In keeping with the shift from valuation to pricing in class, starting this week, rather than give you valuations of the week, I will be doing a pricing each week. I decided to go back in time to 2017 for this week’s pricing is of a Russian steel company, Severstal, because it helps illustrate the process of pricing and contrasts it with the intrinsic valuation, and may be helpful as you price your companies.  You can get the story of the pricing at this link:
You can see the  raw data for steel companies in this link, with an added worksheet for just the top 25 steel companies in market cap terms:
I used this raw data to estimate median values and compared Severstal to those values in this link:
Finally, I looked at the 25 largest steel companies and ran scatter plots and a regression. Even though you may not have the time to do this now, come back and take a look at it when you are working on your final project, if you get stuck on the pricing section. 
In today's class, we closed the book on relative valuation by looking at how to find the right peer group for you company and how to control for differences, with both stories and statistics.  It is amazing how widespread relative valuation is. I found this link recently on rules of thumb in valuation. Take a look at it.... especially the multiples mentionedmultiples, and how to pick the "right" multiple for a valuation, with the answers ranging from cynically picking one that best fits your agenda to picking one that reflects what managers in that business care about.  It is amazing how widespread relative valuation is. I found this link recently on rules of thumb in valuation. Take a look at it.... especially the multiples mentioned
If you are interested in seeing the market regressions, across multiples and different regional groupings, you can find them here:
I have also included the seventh and eighth weekly challenges, if you are interested in trying them out. Neither should take much time to do, but what do I know?

Attachments: Post class test and solution

I know that you have other things on your plate, but I will nag you about your final project nevertheless. Please go through the process that we went through in class of choosing comparable firms, finding a multiple that works and then controlling for differences (statistically or otherwise). Along the way, don’t forget that pricing is a pragmatic game. If it works, use it. If you have no idea what this process involves, take a look at my pricing of Severstal from this week’s valuation/pricing of the week and keep an eye open for the the valuation tools webcast that I will upload tomorrow. For the part of your project where I ask you to value your company relative to the market, feel free to use my market regressions from the start of 2023:
On a different note, if you are struggling with the statistics in pricing, I would suggest watching at least the regression part of my online statistics class. Here is the link to my statistics class:
The sessions in question are 5, 5A and 5B, since I don’t think you will have the time to watch the entire class. I was going to send you the complete to-do list today, but it may be a little overwhelming. So, for the moment, focus on pricing and watch your email next Thursday for the long to-do list.
4/12/24 If you have trying your hand at the pricing part of your project, you probably also are recognizing that this is an exercise in working with data sets. I have put up a webcast that is more statistics than finance about how to look at data and try to evaluate relationships between variables. I use the banking sector to illustrate my case but I hope that you find it useful for both your  project.  If you are solid on your statistics, you can skip this webcast, since you already know everything that I am saying. If you need a quick review of the process, I think it will be useful.
Start with the webcast:
Download the slides:
Here is the raw data:
And the descriptive statistics:

I know that for some of you, a regression is something from a past life, a portion of a long-forgotten statistics class. I am no expert on statistics, but I know just enough to be dangerous, and if want to brush up on your regression basics, you can watch these two sessions I have in my (simplistic) statistics class:
Session on statistical relationships (correlations, covariances, basic regression): https://youtu.be/FrpB3UmVFxQ 
Session on regressions (more): https://youtu.be/i7oD_8gPXnI 
In a world where we are drowning in data and bad actors using that data badly, statistics is needed more than ever before.
I am attaching the newsletter for the week. As we approach the last few weeks of the semester, and you take stock of where you are in the class, some of you may be wondering how your quizzes, final exam and the project will play out in a numerical final grade. In particular, the question of what happens to the worst of your three quizzes, if you take all three, may be confusing you. I don’t know whether this will help but I have create a scoresheet where you can enter your actual scores for the first two quizzes and the case and prospective scores for the remaining quiz, the final exam and the final project, and see the total score you will have in the class. At the moment, I cannot give you a look up table that will convert that total score into a letter grade, because that will depend on how the entire class performs on the remaining quiz, final and project. Remember that the scores you see on the spreadsheet are not your scores, and as you enter your own scores, you will notice that the bulk of the class grade is still ahead of you, and that is good news for some of you and cautionary news for others. For those of you who have done badly on both of the first two quizzes, it is good news, since a good third quiz and final will rescue your total score. For those who have done really well on the first two quizzes, it is cautionary news, since letting your guard down too soon can still cost you. It also operates as a reminder of why getting your final project done is so critical. Just to give you perspective, the median score on the final project last year was 31/35, with a low of 25 (for one group) and a high of 35. (If you are wondering what the 5 points for number submission is for, it is really for entering the numbers that you find on your company into the master spreadsheet by Sunday, May 8 (and it should be a gimme for almost all of you): 
So, if you have been lagging on your project, you may want to catch up.  Finally, there are two grading overrides, where you can get a score better than your score-based grade.
1. The Final Exam override: If you do really well on the final exam (and again that is a relative statement), you may see a bump up in your grade. Last year, for instance, anyone who received a 29 or 30 on the final automatically got an A, a 28-29 an A minus and so on. So, if you have done badly on the quizzes and can ace the final exam, your hopes of an A are intact.
2. The Grade floor: If you are struggling on the class, but have kept trying (taking the quizzes, even though they are tough for you), there is a floor on your grade. If you take all three quizzes, and the final exam (getting at least 10/30 on the final exam) and turn in your final project (numbers and project), your grade cannot be lower than a C. (I hope that you get a higher grade…) 

Attachments: Issue 10 (April 13)

In the week to come, we will put the last finishing touches on pricing, before moving on to asset-based valuation, including liquidation and sum-of-the-parts valuation. We will then turn our attention to valuing privately owned businesses, with the emphasis on what you need to do differently when valuing these businesses, as opposed to publicly traded companies. If things go according to plan, we should be completing packet 2 by Wednesday, setting you up for quiz 3 which is a week from Monday (April 22nd). That quiz will be focused entirely on packet 2, which includes pricing (from last week), asset-based valuation (tomorrow) and private company valuation (Wednesday). If you have the time to get started, the links for the quiz are below:
In today's session, we looked at asset based valuation: liquidation valuation, accounting valuation and sum of the parts valuation. Specifically, we focused on when it makes sense to value a company by valuing its assets and what pitfalls to avoid. If you are interested in a more extensive assessment of companies like United Technologies, you may find this reading useful:
We then started our discussion of the valuation of private companies by noting how the lack of a market price for a business can affect your valuation in implicit and explicit ways, and then arguing that the value you attach to a private business can depend on why/for whom you are doing the valuation.

Attachments: Post class test and solution

I know that today is the day that I send the valuation/pricing of the week, in case you were keeping tabs, but I wanted to clear up any questions about timing and due dates for what’s left of the class. 
April 22, 1.30- 2 pm: Quiz 3 (Preview and past quizzes below)
If you are have the option to take the final on April 24, the sign up sheet is below:
May 6 (Last day of class); Final Project due by the end of the day
May 8, 1.30 pm - 3.30 pm: Final Exam

Quiz 3 Preview:

In today’s session, we started by looking at the challenges of valuing private-to-private transactions, where the buyer of a private business is undiversified and cares deeply about illiquidity, and how the values are depressed as a consequence. We then drew a contrast to the same company being valued by a public company, and argued that this should lead to private businesses increasingly become parts of public companies or going public themselves. In the final section of the class, we looked at valuing/pricing IPOs, and how to deal with offer proceeds from the IPO and the IPO process itself. In the next session, after the quiz, we will start our discussion of real options, requiring you to download and bring packet 3 with you.

Attachments: Post class test and solution

Since you are preparing for the quiz on Wednesday, I thought that this would be a good week to skip the valuation tools webcast. If you feel the urge to work on the project, the twelve valuation tools webcasts can be found on this YouTube playlist:

The quiz is coming up on Monday. If you are in the group (taking both classes, religious reasons) that cannot take the quiz on Monday, please sign up on the Google shared spreadsheet, so that I know. The quiz links are below:
Quiz 3 Preview:
I will also have office hours on Sunday from 4 pm - 5.30 pm, and the zoom link is below:
The newsletter for the week is attached. As the clock winds down, deadlines are approaching. The third quiz will be on Monday (April 22). It will cover packet 2 (pricing, private company valuation and asset based valuation). So, keep that in mind as you review past quizzes.  My suggestion, if you have limited time, is that you start with the most recent quizzes and work back since they will be more closely tied to the material for this quiz. I will have office hours tomorrow from 4 pm - 5.30 pm, and the zoom link is below:

Attachments: Issue 11 (April 20)

First things first. In tomorrow’s class, we will start on the third packet for this class. In case you have not downloaded it yet, the links are below:
PDF: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/valpacket3spr24.pdf
PPT: https://www.stern.nyu.edu/~adamodar/pptfiles/val3E/valpacket3spr24.pptx
Now, on to the quiz. As I look at the emails, I noticed three questions that came up repeatedly. The first two reflect my sloppy language on the quizzes and the third one is just an accounting mess that needs to be untangled:
1. To (1+g) or not to (1=g): Every discounted cash flow model assumes that your first cash flow occurs a year from now (or next year in out discrete time language. I know that some of the intrinsic value equations include a (1+g) in the numerator, and some do not and here is the way to decide which path to take on a  quiz question. If you are given next year's number (earnings, revenues, FCFF etc.), you don't need a (1+g) in the numerator. If you are given the numbers for the most recent year, you do need a (1+g) in the numerator. Thus, if I tell you that the expected operating income or FCFF next year is X, you don't need to put the (1+g) in the model. If the problem is ambiguous, I will accept either answer.  If you are given margins or returns on capital, you should always assume that they are next year’s numbers, because in a stable growth firm, both the numerator and the denominator will grow at the same rate.
2. Risk - Standard Deviation versus Variance: Both standard deviation and variance measure risk, and in fact, give you the same rankings across companies. Thus when I state in a  problem that “30% of the risk in the company comes from the market”, I am being ambiguous, and as a consequence, I would have accepted an answer built on the assumption that this was the average R-squared for the business, and not the average correlation. That is my fault and I will try to be specific about which measure of risk I am talking about.
3. EV Multiples and Cross Holdings: There are quite a few problems where you are asked to compute an EV to EBITDA for a company, correcting for cross holdings. First, check the problem to see if it is asking you to compute a consolidated EV to EBITDA (IC) or a parent-company EV to EBITDA (IC). The way you will approach the problem will be very different in the two cases. I have a spreadsheet below that summarizes the adjustments you will make to the four items in the multiple:
  Corrections for Consolidated EV Multiple Corrections for Parent Company EV Multiple
EV Subtract out equity value of minority holdings and add market value (if you can get it) of non-consolidated part of equity in majority holdings (minority interest). Subtract out equity values of all cross holdings, minority and majority, from market value of equity of company.
Debt None Subtract out 100% of consolidated company debt
Cash None Subtract out 100% of consolidated company cash
EBITDA or IC None Subtract out 100% of consolidated company EBITDA or IC
Why? Other than market cap, every number in the calculation already includes 100% of the consoldiated sub and nothing from your minority holdings. The only adjustment is to market equity, to bring in the portion of the sub that does not belong to you, to match the 100% in your other numbers,  and to remove minority holdings. You want to remove all vestiges of cross holdings from every number. Your market equity includes the estimated equity value of your minority and majority holdings and your debt, cash and EBITDA(IC) include 100% of the consolidated sub. Thus, they are all removed.

4. Regression units: When you are given a regression in the problem, and that regression includes inputs like growth rate and return on equity, I will usually specify the units in which the regression is run. In other words, the regression coefficients will look very different when I enter a 25% growth rate as 25 than when I enter it as 0.25, and that is the reason you will add the unit specification below). 
5. Sum of the parts: In a sum of the parts valuation/pricing, you value or price each part of the firm separately. So, the first thing to do when you have one of these on a quiz is to check to see the information you have been given. If I want you to do an intrinsic valuation of the parts, I will give you intrinsic value inputs (growth, cash flows, risk measures). If I want you to do a pricing, I will give you pricing inputs (pricing multiples, peer group). In almost every one of these problems, there will be a loose end which is the corporate part, which will be a cost for something that all of the parts benefit from. This corporate cost has to be valued, using the cost of capital for the entire firm and an expected growth rate, and you will not surprisingly give you a negative value, which will create a corporate cost drag on value.
6. Intrinsic versus true pricing: With every pricing multiple, I went back to a discounted cash flow model to restate the multiple in terms of fundamentals. With equity multiples, I suggested goring back to a stable growth dividend discount model (value of equity = Expected dividends next year/ (Cost of equity - growth rate). With enterprise value multiples, I suggested a stable growth firm valuation model (EV = Expected FCFF/ (Cost of capital - growth rate). To be clear, these are fairly primitive DCF models, and for the most part, we don’t use them if we are asked to price a stock. However, these regressions are useful because they highlight the variables that affect each multiple - payout, growth and equity risk for PE and reinvestment rates, growth and operating risk for EV/EBITDA, and that can help us in two ways. The first is that they form the basis for the questions you will ask when someone tells you that a stock is cheap because it is priced low. Thus, if you are told that a stock ia a buy, you will question the analyst on the company payout ratio (or ROE), its expected earnings growth and its cost of equity. Most stocks with low PE ratios have low ROEs and/ior low growth and/or high cost of equity. Th second is that they help you pick the variables that you will try to use when you run regressions that try to explain the multiple. If you review your lecture notes, all of my PE regressions are run against beta, growth and payout ratios, at least to start, and if those variables are not significant, you drop them. There are problems in past quizzes, where you are given intrinsic value information, and asked to use it to compute either intrinsic multiples how changes in their value, given information in the problem. There are other problems which are pure pricing problems, where you are given fundamentals across companies, and given information on how they affect pricing multiples (usually with a regression) and asked to price companies. 

After we got the third quiz done, we moved on to looking at real options in corporate finance and valuation. We started by looking at the basic option pricing models, and the ingredients that make for real option applications - that there be an option at play (with an underling asset and contingent cash flows), that the option have significant economic value (and the importance of exclusivity) and that the conditions for option pricing model hold (that the asset and the option be traded…). While we did not get much of a chance to apply these tests, we will use them next session to look at different real option applications. 

Attachments: Post class test and solution

The quizzes are done and are ready to be picked up in the usual spot (top shelf of the book shelf just before you enter the finance department on the ninth floor or KMEC). I have attached the solution to the quiz, and there are two points where your answer may be different from mine.
1. On the second question, where I give you the expected revenues next year and in year 5, and an EV/sales ratio to apply to year 5 revenues, you have to estimate the EV first, then discount it back five years at the cost of capital, then subtract out debt today and the expected FCFF (which is negative for the next five years), before e dividing by the number of shares. Quite a few of you netted out the debt in year  5 and added the cash from year 5 to get an equity value in year 5, and then discounted that value back at the cost of capital. Unfortunately, it is the last part that is a no no, since you cannot discount an equity value at a cost of capital.
2. On the third question, some of you completely zeroed out the corporate costs when valuing the sum of the parts. That is a non-starter. You can allocate that cost across the businesses or value the costs (a negative value) but you cannot ignore it. 

Attqachments: Quiz 3 (Quiz and solution)

4/23/24 I know that some of you are looking at your project with fresh eyes, now that quiz 3 is done, and are wondering about content and formatting questions. I will be sending you a long email on Thursday (please read it when you get it) laying out what I expect to see in the final project, how to structure it and how best to present it. For the moment, though, work on completing your pricing for your company and revisiting and fixing your intrinsic valuation. On a different note, you will notice that there is no valuation or pricing this week, because we have now moved on to real options. While there are interesting applications of real options in companies, they require information that is often not public, and for most of you, are not applicable. There is a subset of companies, money-losing and with a lot of debt, where you can apply option pricing, but that is probably the case in only a small subset of companies. So, good news is that for most of you, once you have priced your stock, the only thing left to do is to make a recommendation, but hold off a few days, because the price can change in a few days.
In this session, we moved on with an examination of option pricing models, and used real options to examine why the rights to non-viable technology can be valuable and why the values of natural resource companies are affected by both the level and variability of commodity prices . As a cautionary note, you are pushing option pricing models to breaking point when using them to value these options, but the key takeaway is that even if you do not value the options explicitly, understanding that they exist can alter how you behave as a business. It is also true that the information that you will need to value many real options will be accessible only if you work at the pharmaceutical or natural resource company, and consequently, you cannot apply it to your company (project), since you will not have that access. During the course of the class, there were a couple of places where I was guilty of not being as clear as I should have been. One was when we discussed why I used guarantor’s pre-tax cost of debt in my present value calculation for Biogen’s license fee. Let me break down my rationale into multiple parts:
  • I use guarantor’s cost of debt, since the guarantor is the one that has contractually agreed to pay the license fee and the risk is that they will not (if they default).
  • I use the pre-tax cost of debt, since there is no tax advantage that Biogen gets from the guarantor using debt. Using an after-tax cost of debt would have inflated the value of the license fee for a tax benefit that Biogen would not be getting.
I also looked at undeveloped reserves as options, and why using discounted cash flow valuations may under value commodity companies, as well as the value of the option to abandon investments and projects. This week’s challenge tries to bring home this message. Until next time!

Attachments: Post class test and solution

4/25/24 This email may freak you out, since there is still time left on the project, but since time is scarce, I thought it would make sense to send you this list today. (Section 3 covers what we will do in class next week, and will not apply for most of your companies.. ) Therefore, if you have not started the project yet, please do. If you have already completed, kudos. If you are in the middle, here is the to-do list , just to keep you organized.

1. DCF Valuation
1.1. Consider feedback you got on your original DCF valuation and respond, but only if you want to.
1.2. Update macro numbers - riskfree rate to today's rate and equity risk premium. 
1.3. Update company financials. If a new quarterly report has come out, compute new trailing 12-month numbers, at least for revenues and operating income.
1.4. Review your final valuation for consistency
What you should include in your final report: A picture that shows your valuation (with the story embedded). That will include your story for the company, the key inputs, a summary of your projected cashflows, your key output (including value per share and price per share). If I were turning in a valuation of Boeing, for instance, here is what it would look like (If you are using my spreadsheet, this is already a worksheet in the spreadsheet that you can use to fill in your story.
Do not attach excel spreadsheets or detailed descriptions of how you levered and unleveled betas or capitalized R&D. I trust you on the mechanics...

2. Relative valuation/ Pricing
2.1. Collect a list of comparable firms (stick with the sector and don't be too selective. You will get a chance to control for differences later) and raw data on firms (market cap, EV, earnings, revenues, risk measures, expected growth)
(You can this data from Bloomberg or Cap IQ. The latter is a little more user friendly) You don’t have to show me your entire list of companies, but list out how many firms are on your comparable list.
2.2. Pick a multiple to use. There may be an interative process, where you use the regression results from 2.4 to make a better choice here)
2.3. Compare your company's pricing (based on a multiple) to the average and median for the sector. Make a relative valuation judgment based upon entirely subjective analysis.
2.4. Run a regression across the sector companies. (Be careful with how many independent variables you use. As a rule of thumb, you can add one more independent variable for every 10 observations. Thus, if you have only 22 firms in your list, stick with only two.)
2.5. Use the regression to make a judgment on your company and whether it is under or over valued. (If you are using an EV multiple, estimate the relative value per share. This will require adding cash and subtracting out debt from EV to get to equity value and then dividing by the number of shares). If none of the regression yield useful predictions, explain that you did try and use the average for the sector for your companies.
2.6. Use the market regression on my website to estimate the value per share for your firm. You can find the regressions here:
What you should include in your final report: Tell me what multiple you used in pricing (and why), the comparable firms you used (with sample size), how you controlled for differences (if you used a regression, give me a summary of what you found with statistical significance - t stats and R squared) and your pricing judgment. For example, if I were presenting a pricing for Boeing, this is what it may look like:
Multiple used: EV to Sales, because earnings are negative and EV to Sales has the highest R squared among the different EV multiples
Comparable firms: Global aerospace and defense firms (Sample size = 28 firms)
Control tool: I ran a regression of EV to Sales against operating margins across the 28 firms 
EV/ Sales =  0.83 +  6.51 (Pre-tax Operating Margin) R squared = 38.33%
(1.35) (4.56**)
(Numbers in brackets are t statistics with the two stars indicating significance at the 99% confidence interval)
Boeing’s pricing = 0.83 + 6.51 (.096) = 1.46 (I used expected future margins, since 2020 margins will be negative)
Boeing EV = 1.46 * $76,559 = $111,390
Boeing Pricing per share = $164.11 (I added cash and subtract out debt to get to equity value, before dividing by number of shares)

3. Option valuation (Next week’s classes...)
3.1. Check to see if your company qualifies for an option pricing model. It will have to be a money losing company with significant debt obligations (a market debt to capital ratio that exceeds 50%).
3.2. If yes, do the following:
3.2.1: Use your DCF value for the operating assets of the firm (not the equity value) as the S in the option pricing model
3.2.2: Use the book value of debt (not the market value) as the K in the option pricing model
3.2.3: Check your 10K for a footnote that specifies when your debt comes due. Use a weighted-maturity, with the weights reflecting the debt due each year. (You don't have to worry about duration)
3.2.4: Estimate the variance in firm value, using your own estimates or the industry averages that I have estimated and are built into the linked spreadsheet.
3.2.5: The value of equity that you get from this model is your option pricing estimate of value for equity.
What you should include in your final report: Boeing is losing money, but its debt is only $28.5 billion (about 25% of its value). So, the option to liquidate is not worth computing.
4. Bringing it all together
4.1: Line up your intrinsic value per share (from the DCF model), the relative value per share (from the sector), the relative value per share (from the market regression) and the option based value per share (if it applies)
4.2: Compare to the market price in May 2024 (the date will depend on when you get done)
4.3: Make your recommendation (buy, sell or hold)
What you should include in your final report: My DCF value ($160/share) and pricing ($164/share) are both higher than the current price. I am buying Boeing.

5. Numbers to me!!!!
Fill in the Google shared spreadsheet when you have the numbers for your company.
To provide some motivation beyond my pathetic begging, I will assign 5 points out of the 40 points on the project to just getting the numbers into the spreadsheet. (Please don’t enter random numbers)

6. Final Project write up
Write up your findings in a group report and submit as a pdf file. The report should be brief and need not include the gory details of your DCF valuation. Just provide the basic conclusions, perhaps the key assumptions that you used in each phase of valuation. There should be relatively little group work. So, you may not really need to get together for much more than basic organization of the report. The group report is due electronically by Monday, May 6, at 5 pm and should be in pdf format. You do not need to attach the raw data and excel spreadsheets). I am not a stickler for format but here are good examples of reports from previous semesters online.
Just to keep the over zealous from going over board, I am going to put a page limit of 15 pages for each report (for up to five companies). You can add two extra pages for each additional company to the limit; with 7 companies, the page limit is 19 pages. If you are doing your valuation individually, a page limit of 4 pages applies. Please do not attach excel spreadsheets. And no.. you don't have to do everything that these groups did. I just like the fact that the valuations were organized, presented in much the same format and were to the point. Of course, content matters.
4/26/24 This is the last of the valuation tools webcasts emails. I just added webcasts on how to value patents as an option as well as valuing distressed equity, using option pricing models.For the patent valuation, here are the links:
Webcast:  https://youtu.be/7nQ0A-wlcUg?si=urWWCxBIv8PoxaU- 
Presentation: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/webcasts/optiontodelay/optiontodelay.pdf
Spreadsheet: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/webcasts/optiontodelay/productoption.xls

As I noted in yesterday’s email, the most practice application of option pricing is in valuing equity in deeply troubled companies, a topic that we will address on Monday. If you are interested in seeing how this works, you can check out the webcast on how to value equity in troubled companies as options: I use Jet India (a company that I think has been put out of its misery) a few years ago, with the model:
The updated version of this spreadsheet is below:
As I said, don’t force your company through this, if it does not fit (it has to be money-losing, with a lot of debt).
The countdown has begun. We have three sessions left in the class, nine days until the project is due and eleven days until the final exam (but who’s keeping count, right?) The last newsletter is attached and while it contains no real news, it is a ritual that I go through each week. As you work on your project, please do enter your final numbers in the Google shared spreadsheet:

If you get ambitious and want to work on getting ready for the final exam, which is scheduled for May 8, from 1.30 pm  - 3.30 pm, here are the links
Webcast: https://youtu.be/_8HYZ-BaBSA
Slides: http://www.stern.nyu.edu/~adamodar/podcasts/Webcasts/valfinalreview.mp4 
You can also find past final exams and solutions at this link:
Past finals: http://www.stern.nyu.edu/~adamodar/pdfiles/eqexams/finals.pdf 
Past solutions; http://www.stern.nyu.edu/~adamodar/pdfiles/eqexams/finals.xlsx

Finally, if you get a chance, please check your quiz scores on Brightspace, to make sure that they match up to what you have. Mistakes do happen! (Notice the passive tense on that sentence) 
 series of questions that cut to the heart of acquisition valuation and will form the backbone for tomorrow’s class. It is a great way to review the entire class while also getting ready for tomorrow’s class. So, please give it your best shot. On Wednesday, in the second to last session, we will turn our attention to the last part of this class, where we will go inside companies and look at the levers to increase value. For those of you who will be in consulting, strategy or running your own businesses, you will get to see what drives value up (or down).  As you embark on the closing touches of the project, here are a few things to keep in mind:
1. Tweak your DCF, if you need to, estimate a value and let it go. This is an ongoing story and this your take, as of right now. I know that some of you have had new quarterly reports coming out, but you also face a realistic time constraint. I will not require that you update the inputs into valuation to reflect the new report, and for the most part, it will not make much of a difference to value, if it does not change your story. I did update the equity risk premium for April 1, to 4.23%, and will be publishing my May 1, 2024, on Wednesday. All the numbers will get updated as well.
2. Do the pricing of your company, recognizing that your final pricing conclusions are going to be a function of the multiple you use, the companies you use as comparable firms and how you control for differences. If your R-squared is low, try alternatives, but at some point, adopt the karmic pose. It is what it is. If you have a money-losing company, rather than force its current negative margins and accounting returns into pricing regressions and getting strange looking numbers, try using forward pricing, where you take your predicted margins and accounting returns (the DCF that you did contains both) in a future year and use those to get forward multiples of revenues or earnings and then discounting the pricing that you get for your equity back to to.
3. If the option pricing applies to your company, try it. For most of you, this will not apply
4. Make your recommendation and I will accept your judgment. When you make your recommendation, remember that while you may have chosen to finish your valuation as of April 15 or April 22 or some other day, your recommendation will be as of close of trading on May 3 (Friday, before your last weekend). That effectively means that the price you will be using will be as of that day (please enter that price into the Google shared spreadsheet). I know that you cannot be updating your DCF and pricing through that day, but making a recommendation from some day in the past is pointless, unless you have a time machine. Recognize that this will mean that given how much prices move, your over valued stock from two weeks ago may be under valued now. A pain in the neck, I know, but reality bites.
5. Go into the Google shared spreadsheet and enter the numbers for your company.  Under date of the valuation, I notice some of you are entering dates like December 2023, which is implausible and perhaps even impossible. You may have used financial statements ending as of December 31, 2023, but you certainly did not value your company on December 31, 2023. The date of your recommendation is May 3, and while your DCF valuation may precede that date, you are using it as your estimate of value on May 3.
Finally, no matter how many mixed messages I have sent (and I am sorry), the final exam is on May 8 

We started today's session by looking at the value of flexibility through the option pricing lens and concluding that the value of flexibility is greatest at capital constrained firms, with uncertain and lucrative investment opportunities. We then turned to looking at distressed equity as an option, focusing on money-losing companies with a lot of debt, and used that template to talk about why equity in deeply troubled firms can continue to trade in the face of financial adversity, how equity investors can shift risk at highly levered firms and why equity in conglomerates can become less valuable, even if you buy companies are fair value. I am sorry if you found the rest of today's session to be a downer. Don't get me wrong. Acquisitions are exciting and fun to be part of but they are not great value creators and in today's sessions, I tried to look at some of the reasons. While the mechanical reasons, using the wrong discount rate or valuing synergy & control right, are relatively easy to fix, the underlying problems of hubris, ego and over confidence are much more difficult to navigate. There are ways to succeed, though, and that is to go where the odds are best: small targets, preferably privately held or subsidiaries of public companies, with cost cutting as your primary synergy benefit. If you get a chance, take a look at a big M&A deal and see if you can break it down into its components. 

Attachments: Post class test and solution

I hope that you are moving towards completion on your project. I am tracking your numbers on the Google shared spreadsheet, and if you have not entered them in already, please try to get your numbers in by Sunday (the earlier in the day, the better). If you already have your numbers in there, and want to change them, you have until Sunday to do it, before I download to prepare for the last class:
As you put the wrap on your projects, here are some final points to consider:
1. Avoid statistical malpractice: In particular 
(a) Sample size: if your sample size is five or six, do not run regressions. You need a sample size of at least ten to be able to run a regression, and you can use only one independent variable if your sample size is about ten. With every ten additional companies in your sample, you get to add a variable, but do so, only if makes a statistical differences.
(b) Less is more: Avoid using independent variables measuring the same thing. Thus, using two measures of growth in the same regression or both ROE and ROIC in the same regression is not a good idea. I know that multicollinearity is a problem in all these regressions, but much of that is unavoidable. This is avoidable.
(c) Stick with ratios: Do not run regressions with absolute values (for revenues, market cap etc.) in the regression. Stick with ratios such as ROE, payout and growth rates or standardized variables like beta and standard deviation.
2. You cannot fight the data. Put simply, if no matter what you try, you cannot get any of the regressions to work, the message is that the pricing in the sector cannot be explained by the fundamentals on the ground today. You might as well compare your company’s pricing ratio to the average or the median, and not weight it much in your final recommendation.
3. If your company is a young, money-losing company, plugging your company current revenues (tiny) and operating margins (negative) into a sector regression will give you absurd predictions for pricing (negative or very low EV to sales ratios). The reason is not mechanics, but perspective. Investors buying Palantir or DoorDash are not buying these companies for how much money they made last year, but based on how much they will make in the future. If you want to price these companies, you have to follow these breadcrumbs, and use your expected revenues and margins from a future year (remember that you have made these forecasts already in your DCF) in the regression to get a predicted pricing for the company. Remember to bring this back to today. As an example, assume that a regression you have for EV/Sales against operating margins yields the following:
EV/Sales = 0.80  + 15.00 (Pre-tax Operating Margin)
If you company current has a -10% margin, plugging that value into the ratio will yield an expected EV/Sales of -0.70, but if you expect your company to have $10 billion in revenues in year 10 and an operating margin of 20% (and a cost of capital of 9%), here is what you will get:
EV/Sales in year 10 = 0.80 + 15.00 (.20) = 3.80
Expected EV in year 10 = $10 billion (3.80) = $38 billion
Value today = $38 billion/ (1.09)^10 ; I am discounting back at the cost of capital, because it is enterprise value. If this were equity value, I would discount back at the cost of equity.
4. With the market regression, and you can use mine (https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/MReg24.html ) you are still making a pricing judgment, but against the entire market (not your sector). Here again, with a young company, you can get odd numbers if you plug in current values for margins and returns on equity or capital and you will be better off using forward estimates for pricing. Also, you can get a very different pricing for your company, because the comparison you are running is different. You still get to pick which pricing you want to use in your final judgment, and you can override both, and use the intrinsic valuation.
5. If your pricing and intrinsic value are very different, you have to choose which one you want to use for your final recommendation. DO NOT average the two. Bankers may do it, but it is very bad practice. When choosing, recognize that there is no right choice. It depends on faith (do you have faith in your DCF) and philosophy (are you a trader or an investor?). I will not second guess your recommendation. 
6. Take a stand: When you are done, you are making a recommendation and it Is not some amorphous third party, but to yourself. Put simply, would you buy or sell the stock? So, don’t dance out, prevaricate, hedge, split the difference. 

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. In the next and last session for this class, we will use 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). 

Attachments: Post class test and solution

I know that you are working on the project, and that your numbers are taking form.  As you get your final numbers, please go into the Google master list:
I do need those numbers for Monday’s class. So, please get them by late night Sunday, and the earlier the better. If you have entered numbers and want to change them, you are welcome to do so before Sunday.

As for the final project report, I have been remiss in giving you information in bits and pieces, and I think I should clarify the details, just in case:
1. Project due date: May 6, by 5 pm or close to that time… 
2. Project content: For each company, please give me your DCF value, your pricing against the sector, your pricing against the market and a recommendation. For those companies, where an option pricing model works, you can add the value from the option model as well. For pricing, you do not need to show me a listing of your sample, but give me sample size and specifications (what were your criteria), and if you run a regression, the key statistics (R squared, t statistics).
2. Format: Please turn in one project for the entire group, as a pdf file (preferable to word). No excel spreadsheets or attachments, please. On the cover page, include the names of the group members, in alphabetical order, and a table listing your company name, price per share, value per share, pricing per share and your recommendation. Here is an example from last year:

3. Page constraints: Please try to restrain yourself. , The  page limit of 15 pages (not including the cover page) for each report (for up to five companies), with two three additional pages tor each additional company in your group. As I mentioned in class, one way to meet the constraint, is to copy and paste the story to numbers page worksheet (and you can dress it up, if you want) as your DCF summary.
4. Delivery: Please send the project to my email, with “The Grand Finale” in the subject. Also, the person who sends the report should cc everyone else in the group, so that when the project is graded and returned, it will get back to all of the group members.

Finally, the final exam is scheduled for Wednesday, May 8, from 1.30- 3.30 pm in Paulson. Like the quizzes, it is open-book, open-notes and no use of Excel (though you can review excel solutions to past finals). It is comprehensive and covers the entire class.
The clock is ticking and I don’t think you need any reminders from me. That said, there are always last minute loose ends and disruptions, and if you do need my help, I will be available tomorrow and day after for office hours:
Saturday: May 4: 11 am -12 pm: https://nyu.zoom.us/j/96245969850 
Sunday: May 5: 11 am -12 pm: https://nyu.zoom.us/j/96245969850 
Note that the zoom link is the same for both sessions to make it easier for you to find it.
I know that some of you are still inputting your numbers into the Google shared spreadsheet, and please keep doing so, even through tomorrow. I did have to download the data that was in the spreadsheet at 10 pm to be able to put the slides together for tomorrow’s class. Please do download these slides and bring them to class:
I would like to see you in class tomorrow, if you can make it. I know that many of you are on the verge of graduating, and have busy weeks ahead, but I will try make the session a barn burner.
Thank you for coming to class today, after I subjected you to a brutal weekend on the project. If you were not able to make it, the slides for the session are here:
We used your findings on the project to review the basics of intrinsic valuation, pricing and real options. If you want to see the entire list of valuations of everyone in the class, please try the link below:
We also spent time looking at how understanding the expected value of control helps in understanding hostile acquisitions, the premium on voting over non-voting shares and the minority discount in private company valuation.

Your final exam is less than 48 hours away. I have sent the review session links before, but just in case you have lost them, here you go:
You can also find past final exams and solutions at this link:

One final point. I will have office hours tomorrow from 3 pm - 4 pm, New York time. The zoom link is below:
The end is near, and I am not talking about the apocalypse. First, the final exam is tomorrow from 1.30 pm - 3.30 pm in KMEC 170. (I had mentioned Paulson yesterday because I thought I had been given Paulson for the final exam, but the Room Gods intervened and took it away from me.). The exam covers the entire class and will include nine questions. Second, if you are just getting started with past finals, start with the latest final exam and work backwards. I did update the 2022 and 2023 final exam solutions to replace the hard coded numbers with the equations that I used to get those numbers. Third, every final exam has an option problem and there are three questions that come up repeatedly, and at the risk of confusing you further, here is a general overview of the questions:

1. What is the probability that S>K?   
As stated in class, it is N(d2) which is the risk neutral probability that S>K. In some of the problems, though, I have used a range from N(d1) and N(d2) as the range of probabilities. Let me explain why. N(d1), in addition to being an option delta, is also a probability that the option will be in the money. In fact, the only reason d1 is different from d2 is because you are uncertain about S
d2 = d1 - square root of the standard deviation
If you had a standard deviation of zero, N(d1) = N(d2). As the uncertainty increases, the gap between these two numbers will widen. Thus, you go from being certain about the probability to having a range. Having said all of this, N(d2) should be the point estimate on the probability that S>K. You can use the range to indicate that there is uncertainty about this probability.

2. What is the cost of delay?
        This is a tough one. Sometimes, I use 1/n and sometimes I use  the cashflow next year/ S and sometimes I use no cost of delay at all. Lets look at the conceptual basis. The cost of delay is a measure of how much you will lose in the next period if you don't exercise the option now as a fraction of the current value of the underlyign asset (It parallels the dividend yield. On a listed option on a stock, if you exercise, you will have the stock and get the dividends in the next period) . Thus, if you have a viable oil reserve, the cost of delay is the cashflow you would have made on the developed reserve next period divided by the value of the reserve today.
        Here is the overall rule you should adopt. If you have a decent estimate of the cashflow you will receive each period from exercising the option, it is better to use that cashflow/ PV of the asset as the dividend yield. If your cashflows are uneven or if you do not know what the cashflow will be each period, you should use 1/n as your cost of delay. If you will lose nothing in terms of cashflows by waiting, you should have no cost of delay.
        Let me take three examples. The first is the bidding for rights to televise the Olympics in an earlier quiz. There were two years left to the Olympics and you were trying to price the option. In this case, there is no cost of delay since you really cannot exercise the option early even if it is deep in the money. (You cannot televise the Olympics a year before they happen...) The second is the oil reserve option. Since the cashflows from the reserve tend to be fairly uniform over time (based upon the barrels of oil you would produce and the current price per barrel, it is easy to estimate the cashflows you would generate each year on the reserve. In most of the oil reserve problems, therefore, you would go with the cashflow/ PV of oil in the reserve as your cost of delay. The third is the patent examples. While you may be able to estimate the expected cashflow each year from commercialising the patent, these cashflows are more difficult to obtain and are less likely to be uniform over time. That is why many of the patent problems use the less preferred option of 1/n as the cost of delay, where n is the number of years left in the patent.

3. How am I going to estimate N(d1) and N(d2) and the option value?
It is not impossible, but it is very difficult, to estimate N(d) without a computer and Excel. Since that choice is not available, I will give you a normal distribution table that you can use. (You will see this on past exams). You will have to find the closest d1 you can, and use the N(d1) that goes with it, but it should work. Also the option pricing problems will all have partial credit for getting the inputs to the model right. So, please do fill in the inputs, so that you will still get credit if you make a mechanical error  in computing option value.

Finally, I have started returning the projects, and some of you should have your graded projects back, (It is FIFO…) You will notice that they are graded out of 35.. The other 5 points are for entering your numbers into the Google shared spreadsheet… And almost all of you did.) If you find yourself with a less than perfect grade, please don’t be surprised. I very seldom give perfect scores for the project, reserving them for flights of imagination that make valuations soar. And if you see comments on the project, do not link them directly to points lost.. I am not going through your project looking for mistakes to take points off for.

The final exam has been graded, and you can pick up the graded exams in the usual spot (ninth floor of KMEC outside the finance department. As always, it is in alphabetical order, face down. The exam was “challenging”, not so much because any one problem was difficult, but because every problem had a twist to it, making none of them “gimmes”.  The solutions are attached and the scores should be on Brightspace. That said, the distribution is below, and you will notice that there are no grades that go with the scores. That is because I am working on your final grades, and hope to have them accessible soon.

Attachments: Final Exam and Solutions

I hope that you are done, and are celebrating. However, just in case you still care about grades, yours just went online. If you want to check how your grades were computed, I have attached a spreadsheet that should help. I appreciate your showing up for class (in person or on zoom) and  the work you put into the class, and the patience you showed as I drowned you in emails, valuations of the week, weekly challenges and other torture devices.  I know that many of you are graduating and I that  hope your "job" brings you as much joy as mine has to me. If you enjoy what you are doing, you will never have to work a day in your life. Well, at least, I have not!  

You have my email address for life and you can bounce off any questions, queries or issues that you have with corporate finance, valuation or the most valuable sports franchises in the world.  If you are not graduating, I will see you around school next spring (I live the cushy life, teaching only in the spring and living near the Pacific Ocean the rest of the year). While I will not be teaching in the fall, I will be back teaching both corporate finance and valuation next spring, and you can watch another entering MBA class endures the duress of unending emails, non-stop nagging and everything else that goes with this class. I could tell you that I hated doing it, but I would be lying. And just in case, you need a valuation fix... here are some links:
Twitter feed: @AswathDamodaran  (Do your part to advance me to Lady Gaga or Kanye West status…)
Linkedinhttps://www.linkedin.com/in/aswathdamodaran. I do post my blog posts on LinkedIn as well and I don’t have a premium membership. Unfortunately, I have hit the cap of 30,000 connections. So, I cannot connect with you, but you are welcome to follow me.
So, have a great summer and an even better rest of whatever life has in store for you! And this is the last time, at least for this class! For the last time!