logo about writing tools
teaching data blog



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?  Is Cathie Woods a genius or just bonkers? How much does a Super Bowl add to an NFL team’s value? 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 30. 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=PLUkh9m2BorqnhWfkEP2rRdhgpYKLS-NOJ
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!
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. https://aswathdamodaran.blogspot.com/2023/01/data-update-1-for-2023-year-that-was.html
  2. https://aswathdamodaran.blogspot.com/2023/01/data-update-2-for-2023-rocky-year-for.html
The first class will be a week from today (Monday, January 30, from 1.30 pm - 2.50 pm, NY time) in Paulson Auditorium. 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. The Zoom link for all of the classes (all 28 sessions) is below:
Join Zoom Meeting:  https://nyu.zoom.us/j/91465550911 
Until next time!
As we wrap up the last weekend before class, I am sending this as a last pre-class email.  We will meet in Paulson from 1.30 pm - 2.50 pm for our first class, and I am, as always, looking forward to it. There is so much to talk about, from the Hindenburg/Adani collision, to one of the most uncommon years in market history in 2022 to Tesla (a constant in every class that I have taught in the last decade). I do realize that some of you will not be able to make it in class for a variety of reasons, and worry not, since the class will be carried live on Zoom. The zoom link for the class is below:
During the first class, it would have been standard practice for me to hand out the syllabus, project description and the introductory notes (for the first 2 sessions), but since we lived in a digital world, I think it is more efficient to send you the digital copies. So, please download them and bring either a digital or physical copy to class on Monday.
At the risk of repeating myself, the lecture note packets for the class are also ready and you can find the links at the top of the webpage for the class sessions:

I last emailed you a week ago, and In the intervening period, I did post an updated valuation of Tesla, which as is almost always the case with this company, is drawing heated responses from both Tesla true believers and Tesla skeptics:
It will be your first valuation of the week (if you have no idea what I am talk about, just wait until tomorrow). Until next time!

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:
Syllabus: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/eqsyllspr23.pdf  
Introduction to Valuation (Slides for Wednesday’s class): http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/Valintrospr23.pdf  
I mentioned the project for the class, but only in very general terms. You can find the specifics at the link below:
Project: http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/eqprojspr23.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).  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: http://www.stern.nyu.edu/~adamodar/pptfiles/val3E/valpacket1spr23.pdf  
PDF version: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/valpacket1spr23.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!)

Attachments: 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:
Once you have read the post, open up this spreadsheet, and you will notice that the master input page, which is the only page that you have to touch, does not require any knowledge of valuation details, but just a sense of your Tesla story:
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. Once you are done, please go to this shared Google spreadsheet and enter your numbers:
Note that when I valued the company just about a week ago, it was trading at $143. It is now trading at above $170. This is clearly a moving target, but do the best you can and let the crowd valuation play out. 
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/1wvwwXNObRaQxzGW__Zc1UeECmKUT8FOmH-drQUN4Z_M/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.
You can also provide them our website in regards to how to access their emails:

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:
I will add on more hours as we get closer to quizzes and exams and project due dates.
TA office hours
Bansi and Rakesh 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.. Until next time!

Attachments: Capital IQ Access Instructions

A few quick notes. The first is that I did put up an in-practice 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. In addition, I followed up with a second post on the pushback that I have received on my Tesla online valuation, and it is less about defending my valuation (since there is nothing gained by doing that) and more about looking at fundamental valuation questions:

Finally, 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:
I hope that you are enjoying your first weekend back at school. I will intrude with a couple of notes. 

1. Correction on quiz/exam formatting: I screwed up (I do this often, and this is just the first one..) on how your quizzes and final exam will be delivered. While the syllabus says these quizzes/exam will be online, they will be in person, and in class. I am sorry!

2. 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?: Please work on forming your groups, and finding your companies. If you are a student needing a group, check out the orphan list. If you are a group, needing an extra person or two, please do the same: https://docs.google.com/spreadsheets/d/1ilonvo5nKx8MFLpRw_PuwFdzGzrr-S5jvldVMkUAz4Q/edit?usp=sharing

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 2023 version, by looking at the cover page, which should say updated in 2023,

Have a great weekend! Until next time!

Attachment: Issue 1 (February 4)

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. 

On a different note, I don’t usually write in response to reader pressure, but I did make an exception this week, and wrote down my thoughts (not very deep or insightful…) on the Adani affair, partly because this story has legs that stretch well beyond the company. It shines light on the weakest links in the Rising India story, family-group companies with a control obsession, a stock market where bullish momentum trading is celebrated and rewarded and institutions (banks, regulators, exchanges) that are mired in inertia, bureaucracy and politics. 
I hope that you find it useful.

Attachments: Kennecott (start of the class test for 2/6/23)

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. 

Attachment: Post-class test and solution

This week’s valuation of the week is of a company that is in the news, more for bad reasons than good ones, and that is Adani Enterprises, the flagship and holding company for the Adani Group. If you have never heard of the group, or you want some background, please start with my post on the group:
If you don’t trust my point of view, check out the historical data on the company here:
The report from Hindenburg Research that triggered the meltdown is here, and it is well worth reading (especially if you have never read a short selling thesis before):
I did a fairly cursory valuation (since that was not my focus in this post) at the link below:
My connections to India are minimal and aging, and I might be missing some key components of the company. If you get a chance, change my inputs to reflect your views and value the company, and once you are ready, please enter your numbers in the shared Google spreadsheet:
We started the class with a discussion 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. 

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/1wvwwXNObRaQxzGW__Zc1UeECmKUT8FOmH-drQUN4Z_M/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 2022 version by going to the link below: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4066060

That’s about it for the moment. Enjoy the weekend, and until next time!

2/10/23 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 know some of are or were in my corporate finance classes and have heard my views on ESG. This morning, I gave a three hour talk on what I called the theocratic trifecta: ESG, Sustainability and Stakeholder Wealth maximization. While I have said almost everything in this session in other posts and forums, it brings together the full case against the trifecta. If you have three hours to spare, or perhaps even a subset, try it out:

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

Issue 2 (February 11)

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. 
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. In the meantime, if you want something to read, I just posted my fourth data update for 2023:  https://aswathdamodaran.blogspot.com/2023/02/data-update-4-for-2023-country-risk.html

I apologize for the screen sharing snafu, if you were on Zoom today (it is about 12 minutes, between minutes 10 and 22 of the class). 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 spent the rest of the session talking about the dynamics of implied equity risk premiums and what makes them go up, down or stay unchanged. We then moved to cross market comparisons, first by comparing the ERP to bond default spreads, then bringing in real estate risk premiums and then extending the concept to comparing ERPs across countries. 

Finally, I made the argument that you should not stray too far from the current implied premium, when valuing individual companies, because doing so will make your end valuation a function of what you think about the market and the company. If you have strong views on the market being over valued or under valued, it is best to separate it from your company valuation. I am attaching the excel spreadsheet that I used to compute the implied ERP at the start of February 2023. Play with it when you get a chance. Post class test and solution attached.

Attachments: February 2023 ERP, Post class test and solution

For this week, I thought I would switch gears and value a very different company from the hot messes of the last two weeks (Tesla and the Adani Group). This week, I look at Aramco, a 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 2022 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.
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:
Good luck and have fun!

2/15/23 In today’s class, we started by reviewing 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:

There is one final point related to overall class logistics that I want to highlight. As you have noticed, I do come at you incessantly with emails, things to watch (  and things to do, and I do realize that given all of the stuff you have on your plate, it is easy to get behind and feel overwhelmed. I understand that feeling, and I recognize that you may have far less time than I think you do for this class. In the interests of working with constraints, here is my suggestion on what you should focus on, given the time that you can spend on this class (in addition to being in lecture or watching it online).

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 and solution

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:
It is not because I have good spreadsheet skills. Far from it, since I have never used an Excel macro and don’t particular care for them. 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.
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, 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. 
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
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 March 1, 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:

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. In the meantime, attached is the newsletter for the week. I will also, with my boundless compassion, spare you my emails tomorrow and day after. Have a great rest of the weekend!

Attachment: Issue 3 (February 18)

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! 
In today’s class, we started with the cost of debt and computing debt ratios for companies and how to deal with hybrid securities.. If you are interested in getting updated default spreads (on the cheap or free), try this site:
While 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 moved on to getting the base year's earnings right and explored several issues:
1. To get updated numbers, you should be using either trailing 12 month numbers or complete the current year with forecasted numbers. In either case, your objective should be to get the most updated numbers you can for each input rather than be consistent about timing.
2. To clean up earnings, you have to correct accounting two biggest problems: the treatment of operating leases as operating (instead of financial) expenses and the categorization of R&D as operating (instead of capital) expenses. The biggest reason for making these corrections is to get a better sense of how much capital has been invested in the business and how much return this capital is generating. I know that we have not covered R&D expense capitalization in class, but I think you can still try it.  Post class test and solution attached, as is the weekly challenge. 

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

Attachments: Post class test and solution, Weekly challenge #3

I was going to remind you of the project and working on it, but if you are turning your attention to the quiz, you may be checking out the past quizzes, which seem endless and go back to 1997. If you want more quizzes to practice on, try these for all the quizzes through 2022, and remember to work backwards, since the earlier quizzes may have slightly different coverage:
Past quizzes: http://www.stern.nyu.edu/~adamodar/pdfiles/eqexams/quiz1.pdf 
Past quiz solutions: http://www.stern.nyu.edu/~adamodar/pdfiles/eqexams/quiz1sol.xlsx
I hope that you find some time to not just review the lecture notes, but work through the practice problems. In fact, it is the working through problems, using the lecture notes as a guide, that will provide the deepest learning. 

If you are working with time constraint issues, here is my suggestion:
  1. 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.
  2. Time constraint moderate: 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.
  3. Time constraint exists, but 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.
  4. What time constraint? Work through every quiz since 1997! 

The quiz will be in the first 30 minutes of class, and it will be in-person, followed by class. If you have arranged with the Moses Center for special accommodations, you will have to go to the Moses Center, but check with them on other logistical details. There are good people there who will work with you.
Finally, I will be having zoom office hours on Tuesday, February 28, from 5 pm - 7 pm, since it will be more convenient for you than actually trekking to me office on the 9th floor. The zoom link is below:
Topic: Office hours for Quiz 1 (Valuation)
Time: Feb 28, 2023 5 PM - 7 PM Eastern Time (US and Canada)
Join Zoom Meeting

 Until next time!

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! Until next time!

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.

Attachment: Issue 4 (February 25)

I was going to remind you of the project and working on it, but if you are turning your attention to the quiz, you may be checking out the past quizzes, which seem endless and go back to 1997. If you want more quizzes to practice on, try these for all the quizzes through 2022, and remember to work backwards, since the earlier quizzes may have slightly different coverage:
Past quizzes: http://www.stern.nyu.edu/~adamodar/pdfiles/eqexams/quiz1.pdf 
Past quiz solutions: http://www.stern.nyu.edu/~adamodar/pdfiles/eqexams/quiz1sol.xlsx
I hope that you find some time to not just review the lecture notes, but work through the practice problems. In fact, it is the working through problems, using the lecture notes as a guide, that will provide the deepest learning. 

If you are working with time constraint issues, here is my suggestion:
  1. 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.
  2. Time constraint moderate: 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.
  3. Time constraint exists, but 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.
  4. What time constraint? Work through every quiz since 1997! 

The quiz will be in the first 30 minutes of class, and it will be in-person, followed by class. If you have arranged with the Moses Center for special accommodations, you will have to go to the Moses Center, but check with them on other logistical details. There are good people there who will work with you.
Finally, I will be having zoom office hours on Tuesday, February 28, from 5 pm - 7 pm, since it will be more convenient for you than actually trekking to me office on the 9th floor. The zoom link is below:
Topic: Office hours for Quiz 1 (Valuation)
Time: Feb 28, 2023 5 PM - 7 PM Eastern Time (US and Canada)
Join Zoom Meeting
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 2021, 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. If you want all quizzes that I have given from 1997 to 2022, you can get them at the links below:
Quizzes: http://www.stern.nyu.edu/~adamodar/pdfiles/eqexams/quiz1.pdf
Solutions: http://www.stern.nyu.edu/~adamodar/pdfiles/eqexams/quiz1sol.xlsx
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 5 pm - 7 pm, New York time. The link to Zoom is here, and I will see you there:
Time: February 28, 5 pm - 7 pm, NY time
Join Zoom Meeting
See you tomorrow in class!
We continued our discussion of cash flows, by first putting to rest 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
We then moved on to examine broad questions about what to include in capital expenditures and working capital, before putting the cash flow topic to rest by working out debt cash flows and cash flows to equity. If you are interested, you may find this post that I had on free cash flows useful (with Microsoft as my case study):

Next session, we will continue with a discussion of growth rates but remember that the quiz in the first half an hour of class., but there will be class afterwards. Another reminder is that I will be having office hours tomorrow, on zoom, from 5 pm - 7 pm, NY time. (Link was in yesterday’s email)

Attachments: 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. And just as a reminder, there will be a two-hour quiz office hour(s) today from 5 pm - 7 pm, with the zoom link below:
You are welcome to drop by at any time, during the two-hour period, or just lurk and listen to other people’s questions and my answers (or non-answers).

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 two years ago on Disney Streaming and will be soon out with its third seasons, and those Baby Yodas are a mechandisin hitl. That adds a value stream that did not exist a few years ago. Armed with this additional information, here is what I would like you to do. Go into the spreadsheet and reestimate the value of the Star Wars franchise. It may be only tweaks but give it your best shot. Once you have a value, go into this shared Google spreadsheet:
Enter your numbers and lets see how the distribution of values evolves over time. And since this is a Star Wars post, might as well end with some good advice from Yoda: Have fun, you must!


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 i, 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.

3/1/23 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 into two piles. 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 soon (perhaps in another hour or so). Needless to say, if you have issues with the grading, I will be glad to talk with you. Since physical office hours still seem to be a no-no, I will set up a zoom link for those with grading questions to come in.

Attachments: (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 4)

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, 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 started with a continuation of our discussion of fundamental growth rates, starting with non-cash net income and then moving on to operating income. 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 second half of the class, we looked at the elephant in the DCF room, the terminal value, and laid out broad constraints that keep it in check. In furtherance of that discussion, I would like you take a look at five posts that I had on terminal value on my blog that cover the spectrum of questions related to it:

Hope you find it useful. Post class test and solutions attached!

Attachments: Post class test and solution

Since you are probably tin no mood for a serious valuation leading into spring break, 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:
You can do one of the two things in this week’s valuation challenge. 
1. You can take my Clipper valuation and make your own assumptions (there are relatively few) and value the Clippers as of June 2014. 
2. You can then follow up by trying to price the Clippers, a preview of the pivot that we will be making away from valuation in the weeks to come. To help, I have raw data on sports franchises below:
For MLB, NFL, NBA and NHL: http://www.stern.nyu.edu/~adamodar/pc/blog/SportsTeamData.xlsx 
For European soccer teams: http://www.stern.nyu.edu/~adamodar/pc/blog/eurosoccerrawdata.xls 
For IPL (Indian cricket) teams: http://www.stern.nyu.edu/~adamodar/pc/blog/IPLrawdata.xls 
The IPL and Euro soccer data is a little outdated and you are welcome to update them, if you want. (Forbes has a pretty good annual update on all of these…) If you are a fan, you can pick your favorite team and using the raw data in these spreadsheets, try to value and price your franchise. My most valuable team will always be the Yankees, but that’s my bias speaking up.


In today’s class, we started by 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. We then 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. In the second half of the class, we talked about the loose ends in valuation, i.e., all the things you do after you have discounted cash flows back at the discount rate and why they matter. We started with cash, the simplest and most direct of all assets to value, and talked about why investors may attach a premium or discount to the cash balance of a company, arguing that discounts reflect a lack of trust in management. I mentioned a paper that looks at how the market discriminates across companies, when it comes to valuing cash balances. We then moved on to cross holdings, and why they are difficult to incorporate into value, and some approximations that you can try, when valuing them. In the next session, after the break, we will continue with the loose ends discussion. 

Attachments: Post class test and solution, Weekly challenge

I know that you are looking forward the the break, and I wish you the best. That said, 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 31. 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 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. Use what you want, turn off whatever you do not. To help you in using the spreadsheet, you may want to use this video guide that I recorded this morning for the Motley Fool, on how to use that spreadsheet. 
he presentation is long (about 2 hours) but the first hour is a quick review of the class, and if you have lost perspective as we delve into the details of discount rates, cash flows and growth, it is worth watching. The second hour takes you through the spreadsheet, using the Tesla November 2021 valuation as the exhibit, on how to estimate key inputs and how to read the output. I also did a second YouTube video for them on asking what if questions:
T  If you are valuing a bank, you can try the dividend discount model that I have online:
That 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.  Anyway, as spring break approaches, I do think it is time that you get a break from me, as well. This will be your last email for a week (until next Friday). Have a wonderful break, and come back refreshed and relaxed. 
3/17/23 If you are back from break, welcome back! If not, enjoy the weekend and hope to see you back on Monday. That said, my week of not sending emails is now officially over, and in case you have the time, I hope that you are starting work or are continuing to work on your company valuation (which is due for informal feedback on Friday, March 31). 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 week that we had off turned out to be an eventful one, with bank failures now in the news, and risk concerns rising to the top. If you are valuing a bank, there are lessons you can learn from the Silicon Valley Bank meltdown, but even if you are not valuing a bank, you are getting a real-time lesson in how bank failures create systemic risk.

The newsletter for this week is attached. Not much news to report on my front, since we did not have class last week, but if you have completely lost track of where we are in the class, In addition, the world moves on and there is plenty of news on the financial front. 

Attachment: Issue 6 (March 18)

At the start of the class, I mentioned that valuation is always interesting, and that interesting is not always desirable. It looks like the week we went on break was an eventful one. As we wait for Credit Suisse to be acquired by UBS, and wonder how the market will treat First Republic tomorrow and whether this contagion will spread, I tried to take everything that I know about Silicon Valley’s Meltdown and capture it in a picture. It illustrates the perfect storm that engulfed the company:

This week, we will complete our discussion of intrinsic value and move on to valuing entire companies (notice that we have not valued a single company in class, just pieces of companies). I hope that you have had a chance to get started on your discounted cash flow valuation, but if you have not, the spreadsheets that you will be using are linked below:

Valuing non-financial service firms: https://pages.stern.nyu.edu/~adamodar/pc/fcffsimpleginzu.xlsx

Valuing financial service firms: https://pages.stern.nyu.edu/~adamodar/pc/divginzu.xlsx

Of course, if the company you picked to value is First Republic or Credit Suisse, the latter model will not work for you, but almost nothing works in a bank run. 

During today's session we finished the last loose ends in valuation and started on connecting stories to numbers. The way in which companies and equity research analysts treat stock based compensation is criminally negligent and I hope that you fin this post on the topic useful:
 If you want a longer version of my stories to numbers session, you may prefer this Google talk version that I did a few years ago on the same topic:
It is longer and in a little more detail.

The DCF is due by a week from this Friday (March 31) (try to get it in by 5 pm, but if not, 6 pm or 7pm..). 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, you are welcome to use the spreadsheet that I have already built (or adapt it to your needs, so that you are not starting from scratch).The most versatile one for non-financial service firms is:
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 used Uber 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 Hurley (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. 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 continued our discussion of stories, and how critical it is to keep the feedback loop open, so that you can make your stories better. We also talked about how story breaks, shifts and changes. Since I talked about dealing with new earnings reports, I thought you may find these two posts of interest in how narratives shift, and with them, values:
Reacting to Earnings Reports: http://aswathdamodaran.blogspot.com/2014/08/reacting-to-earnings-reports-lets-get.html
Narrative Resets: http://aswathdamodaran.blogspot.com/2015/08/narrative-resets-revisiting-tech-trio.html 
We started with a conventional valuation of Con Ed in class, but we will move to more interesting storylines and valuations next class. If you are still wrestling with the question of management options, I have a weekly challenge that may help you work through your doubts:
Of course, the stories on these companies has evolved since, but it should give you a taste of how narratives change. No postclass test or solution today, but try the one from last class, since it is about stories.

Attachments: Post class test and solution, Weekly challenge

 I know that your project DCFs are not due until a week from tomorrow, but if you decide to work on your DCF and even turn it in early, here is some general guidance.
  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 type of non-financials service firm (from start-up to one in decline). It has updated equity risk premiums,  for both the US and other countries and both US and global industry averages. If you have a financial service firm, use https://pages.stern.nyu.edu/~adamodar/pd/divginzu.xlsx
  5. Each of your valuations tells a story. Try to make your story 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. Please use it to tell me your story for the company and connect with the inputs.
Don’t put too much pressure on yourself. This is only for feedback. Try your best.

I hope that you are able to spend some time this weekend working on your valuations, and they are due next Friday (April 1, and not the week after). As you work through them, there will be occasions where you will get a value that is very different from the price, and you will be inclined to believe that you (a) must have done something wrong or (b) that my spreadsheet has done something to screw up your valuation. While the latter will make you feel better, the truth is that the spreadsheet is designed to faithfully convert your inputs into a valuation. Thus, if you are getting too  low a value, it is coming from your inputs on growth rates, margins and reinvestment (through your sales to capital ratio for the next ten years and the ROIC after year 10). Changing those inputs will change your value, but if your end game becomes getting the value closer to the price, you have to ask yourself what the point of doing valuation is, in the first place. There is a diagnostic worksheet built into the spreadsheet that points to your big assumptions and how they connect to your valuation. Use it, if you are concerned about your value. Here is a simple table that illustrates how your assumption in the spreadsheet change value:

Put simply, this table illustrates what happens to your value per share, when you change these inputs in your valuation. Some of the effects are obvious; higher target operating margins will always increase value and higher costs of capital will reduce value. Some are tricky. If your value looks low, and you increase the revenue growth rate, it will mostly increase value, but it can sometimes lead to lower value, if you have a low sales to capital ratio (and higher revenues cause reinvestment to increase). The default assumptions at the bottom can also affect your value per share, and if misused, can cause your valuations to blow. In particular, be very, very careful with the default assumption where I let you set a growth rate that is different from the risk free rate in perpetuity. If you over ride that default and set the growth rate well above the risk free rate, I will have to disavow any responsibility for what may happen to your value.

On a different note, 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.

I hope that you are approaching cloture on your DCF valuation. In case you are interested, the newsletter for this week is attached.

Attachment: Issue 7 (March 25)

3/27/23 We started class today 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 3, 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:

Attachment: Post class test and solution

I know that you are working on your valuation and trying to get ready for the quiz, and you have little time for distractions, but file this email away for another day, perhaps even after the class ends. We have come off a decade where companies marketed themselves on user and subscriber count, and VCs and investors viewed scaling up users as a priority, over building a business model. As a natural skeptic, it struck me as short-sighted since while adding more users does add to revenues, it comes with a  cost of acquiring these users, and there is a law of diminishing returns where going for more users reduces value rather than increasing it. I was on a long Uber ride in 2017, when I decided that I would spend the time productively by creating a framework for valuing an Uber rider. Those idle thoughts became a post, where I valued Uber from the riders up, rather than from the top down approach we traditionally use in valuation. That post can be found here:
Uber is a transaction-model, where revenues are generated only when users use its service, and there are two other user-based models. One is the subscription model, which Netflix is a frontrunner on, and I valued a Netflix subscriber, and by extension, Netflix as a company in a subsequent post:
Finally, since Amazon has always been an obsession for me, and I happen to be a prime member (as I am sure many of you are), I tried to resolve a question that had always puzzled me about Prime, and how it adds to Amazon’s value in this post:
I summarized what I learned about user and subscription in two subsequent posts, where I looked at value dynamics in these models:
  1. https://aswathdamodaran.blogspot.com/2018/05/user-and-subscriber-businesses-good-bad.html
  2. https://aswathdamodaran.blogspot.com/2017/07/usersubscriber-economics-value-dynamics.html 

If you do find this line of valuation interesting, I did write a more organized paper where I brought all these thoughts together:

Finally, if you decide to try your hand at this, pick a user or subscriber-based company, and try to value a user or subscriber. And once you have that number, you can extrapolate to the value of the entire company. You can enter your numbers (for whichever company you choose) in this Google shared spreadsheet:
Until next time!

In today’s session, we continued on the dark side of valuation with a look at mature companies on the verge of transitions, 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 second half of the class we examined the issues (country risk, cross holdings and currency gyrations) that are part of emerging market company valuations and began our assessment of why banks pose special challenge in valuation.

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 
I had also promised office hours this weekend. They will be from 10 am - 11 am on Sunday, and the zoom link is below. If there are lots of people, I will stay on as long as needed to answer your questions:
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 week, 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 123 coming in overnight, and I will start on them as soon as I finish this email and work through the weekend. I usually don’t pay much attention to the tweets that come into my feed, since I follow only three people,(my three sons and the only reason that I don’t follow my daughter is that she won’t let me follow her), and none of them has tweeted in a  few years. That said, I found this tweet this morning and it is from someone, who is not in this class, who is using the valuation spreadsheet that I have shared with you to value a company and is using ChatGPT to read my mind:
It  is a little creepy that ChatGPT claimed to know what I would do to find the value of non-operating assets, but its advice is not bad. Here is where I think it may be missing what my actual response would be:
1. It is a lot more formal and verbose than I would be, and perhaps a little more polite
2. It gives me credit for doing more work than I would really do. For instance, there is zero chance that I would contact Alpha Metallurgical to get the data. I am much too lazy and untrusting to do that.
3. It is a little too textbook in its response. Sometimes problems need creative solutions
4. The biggest and most challenging non-operating asset is cross holdings, and I am surprised it did not find my writings or teaching on cross holding valuation. Be glad for small blessings!
That said, if you are stuck in your valuation, and want to try ChatGPT’s reading of what I would say, I would love to get these responses and perhaps write a post around what I learn from these responses. Have a great weekend (even if you have to prepare for a quiz) and see you on Monday! Until next time!
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: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/valpacket2spr23.pdf
Packet 3: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/valpacket3spr23.pdf

Attachment: Issue 8 (April 1)

4/2/23 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 even start on pricing, 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!
I thought is would be a good idea to take the questions that I have received most frequently about the quiz, by email or during office hours, and to try and answer them.  I hope that doing so helps you and does not make you more confused, but I am going to go ahead anyway:
1. Investing and Growth - Time Lags: In our discussion of growth, we talked about how businesses need to reinvest to get growth,  and tied the two together, using either reinvestment rates or sales to capital ratios to make the link explicit. In the process, though, there were implicit or explicit assumptions that we were making about how much of a time lag, if any, there is between when you reinvest and when you deliver growth, and I apologize for not dealing with hose assumptions more directly. The easiest assumption to work with, when building valuation models, is to assume that they happen contemporaneously, where reinvestment and growth occur in the same year. In fact, that is the assumption I have made in most of the quiz examples and in building my fcffsimpleginzu spreadsheet and it shows up in two ways: 
a. When I compute the growth rate in any year, I multiply the reinvestment rate in that year by the return on capital in that year, effectively linking reinvestment in a year to the growth rate that year. 
b. When I use sales to capital ratios, I take the change in revenues in a year and divide by the sales to capital ratio that year to get the reinvestment that year. Thus, to get reinvestment in year 2, I look at the change in revenues from year 1 to year 2 and divide that change by the sales to capital ratio.
You can and perhaps should take issue with this assumption of contemporaneous growth, and argue that you reinvest first and wait for growth. If you assume a one year lag, the effects on valuation are simple. Your reinvestment rate this year will deliver growth next year, and in our simple examples, where there is five years of growth and stable growth afterwards, it will imply that the reinvestment rate in year 5 will drop because it will be linked to growth in year 6. If you use sales to capital ratio, it will imply that the reinvestment in year 2 will be computed based upon change in revenues from year 2 to 3. In fact, you can generalize this to cover longer lags (which may be a more reasonable assumption to make in infrastructure and pharmaceutical businesses), Thus, with a three-year lag, your reinvestment in year 2 will be based upon the change in revenues from year 4 to year 5. Finally, this time lag assumption also shows up in how we compute accounting returns. The standard calculation divides the earnings in a period by the invested capital in the prior period, on the assumption is that there is a one year lag between reinvestment and growth. On the quiz, I will give full credit whether you use the contemporaneous or time lagged paths, even though they yield different numbers.
2. NOL and Taxes: A NOL, by itself, has no value, and its value effect comes from the taxes you will save from using the NOL. Let’s take the two extremes. At one extreme, assume that you have a company that you never expect to make money in the future, with a NOL; that NOL is worthless, because without taxable income, you will never save taxes. At the other, you have a firm that expects to generate a large enough profit to claim the entire NOL right away. For this company, the tax benefit is the NOL* Tax rate, with no discounting needed. In the problems in the quiz, you have the intermediate cases, where a company has taxable income that it can shield from taxes, but only over time. The value effect of the NOL is the present value of the tax benefits that you will get over time, and using the cost of capital to discount them reflects both time value and the risk that you may not be able to earn enough to get that tax benefit.
3. Minority Holdings and Minority Interests: Minority holdings reflect small parts (5%, 10%, 15%) of other companies that a company owns, and they show up as assets on the company’s balance sheet. Minority interests are a different kettle of fish, and represent portions of companies that you own a majority percentage of (60%) and represent the portion of those companies that you don’t own and show up as liabilities. I know this is incredibly confusing, and it is not my choice of terms either. When valuing a company, and you are discounting cash flows at a discount rate, the question you should always ask is what assets you have valued already (through the cash flows) and which ones you have not. If you are using FCFF, based upon operating income, you have not valued minority holdings (because the income from these holdings show up below the operating income line) and you should be adding that value on to your FCFF-based valuation. In contrast, when you own 60% of another company, you have to consolidate, and if you use the consolidated company’s FCFF to get to a value, you have acted like you own 100% of the subsidiary (when you own only 60%). You consequently have to subtract out the 40% that does not belong to you, and you have three choices:
a. Subtract out the minority holding (which is the accoutnng or book value estimate of the 40% that does not belong to you. The problem is that this is a book value.
b. Estimate the market value of the 40% holding, by multiplying the minority interest by a price to book ratio, and netting that our from your valuation. This is better, but it is a pricing, not a value.
c. Value the subsidiary from scatch, and subtract out 40% of that value from your valuation (replacing the minority interest based number you would have used instead)
4. Terminal value calculations: To compute the terminal value, you need to use cashflows growing at a constant rate forever. While you may be tempted to use the cash flow in your final year of growth and apply the stable growth rate to this number, fight the urge, since you will have items in that year that you cannot assume will continue forever. For instance, your reinvestment in that final year of growth will reflect the growth rate that you had in that year, with the contemporaneous growth assumption, and with a stable growth rate (that is lower) that reinvestment has to be recomputed. In one of the problems, the tax rate in your final year of growth is lowered by the last remnants of a NOL. That NOL cannot save you taxes forever, which then requires that you start with EBIT in your terminal year, and computing EBIT (1-t) with the marginal tax rate and a reinvestment reflecting growth in perpetuity.
In today’s session, after the second quiz, we wrapped up our discussion of intrinsic valuation. 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:
With SVB’s collapse, which was triggered by duration mismatch, there might be a new iteration that I have to try to bring in that risk into the valuation. We also looked at valuing commodity and cyclical companies, and why capitalizing R&D can change the value of a pharmaceutical company. The last part of the class was our first foray into pricing, why price can be different from value and why pricing is so much more common than intrinsic value. 

Attachments: Post class test and solution


I know that it is late into the night, and it is unlikely that any of you are still in the building. If you are, the quizzes are available to be picked up on the ninth floor of KMEC, on the second shelf of the shelves that are just before you enter the department (look to your right as your get off the elevator). I have attached the grading template for you to check and make sure that I have not screwed up on the grading. Since this is the second class that I have graded today, I am feeling a little punch drunk and it is possible that I have made mistakes. Unlike the pope, I am fallible. For those of you for who care, the distribution of the quiz scores is attached below.

Attachments: Quiz 2 (Quiz and solutions)


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 and descriptional 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

4/6/23 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 multiple 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

The newsletter for the week is attached. Have a wonderful weekend!

Attachment: Issue 9 (April 8)

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. 

Finally, I do know that some of you have been using the live zoom sessions and the recordings of the class, rather than be in class physically. For some of you, it may still be worries about health, and for others, it may be that, on any given day, there are other things going on in your life that may prevent you from attending class. That said, there are some of you that I have not seen in class in weeks, and if if it is a close call between staying home and watch the zoom sessions and being in Paulson for class, I would love to see you in the room.
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 PBB 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.

Attachment: Post class test and solution

4/11/23 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 price young companies, using forward multiples, 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 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:

Attachment: 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. 
4/14/23 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:

By the way, I forgot to send you the weekly challenge for this week. It is a quick one, and it is worth doing simply to solidify your understanding of the definitional test for multiples (are they consistently defined), 
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. 

Attachment: Issue 10 (April 15)

4/16/23 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 following Wednesday (April 26th).
At the start of the session today, I mentioned that your final exam was on May 11. It is not. It is on May 10, and it was my mistake, and I am sorry. In this 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. 

As the end of the semester approaches, the pace will continue to pick up, and next week will bring quiz 3, which will cover all of pricing, asset based valuation and private company valuation (packet 2), scheduled for next Wednesday. The links are below:

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 26, 1.30- 2 pm: Quiz 3 (Preview and past quizzes below)
May 8 (Last day of class); Final Project due by the end of the day
May 10, 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, we will start our discussion of real options, requiring you to download and bring packet 3 with you. 

Attachments: Post class test and solution

4/20/23 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 should include your 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.

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)
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)
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 2023  (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 8, at 5 pm. A pdf format works best. 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 spreadsheet. 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.
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:

Finally, I will have office hours this Sunday, from 10 am - 11.00 am, staying on longer if there are people still waiting to ask questions, about the quiz, and on Monday morning from 9 am - 10 am, if you have any final questions. The zoom links are below:
Sunday, 10 am - 11.30 am: https://nyu.zoom.us/j/97350326565
Monday, 9 am - 10 am: https://nyu.zoom.us/j/98909379543
The newsletter for the week is attached. As the clock winds down, deadlines are approaching. The third quiz will be on Wednesday (April 26). 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 10-11.30 and on Monday from 9 am - 10 am, if you have questions.
Sunday, 10 am - 11.30 am: https://nyu.zoom.us/j/97350326565

Monday, 9 am - 10 am: https://nyu.zoom.us/j/98909379543

Attachments: Issue 11 (April 22)

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://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/valpacket3spr23.pdf
PPT: https://www.stern.nyu.edu/~adamodar/pptfiles/val3E/valpacket3spr23.pptx
Now, on to the quiz. As I listened to the questions during my zoom session today, 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:
I am sorry for those on the zoom session who were stuck on the start of the class test slides almost half way through the class.With my cold and voice struggles, I was off my game!  I am using an alternate recording link for the class (https://mediasite.stern.nyu.edu/Mediasite/Play/0b39939a4f8e437caf9b15f7f0e0ad001d ), which matches slides up to audio, to make the downloadable video and YouTube links, but it will not show up until tomorrow.

We started today’s class by looking at the basic option pricing models. After that, 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.

Just a reminder that the third quiz is on Wednesday in the first 30 minutes of class.

Attachments: Post class test and solution


In this quiz-shortened session, In today’s class, we continued with our discussion of real options, starting with an analysis of undeveloped natural resources are options and why the value of natural resource companies are affected by both the level and volatility in the prices of the commodity/natural resource. We followed up with the excitement of being able to add premiums to discounted cash flow valuation, in the option to expand, and concluded with the option to abandon, and how that ties into the benefits of flexibility to companies. 

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 of the bookshelf to the right, just before you get to the front door of the finance department. They are in in alphabetical order and the grades are on Brightspace. The solution is attached with the grading template. I am sorry to be terse but 350 undergraduate quizzes await me…

Attachments: Quiz 3 (Quiz and solutions)

I will start with the good news. For most of your companies, there is really no application of real options. There will be a few of you who may be able to bring in a real options assessment, either qualitatively or quantitatively:

  1. If you are valuing a pharmaceutical company that has multiple drugs in production and many patents, don’t try to value each patent. You will drive yourself to distraction. If you have a small Pharma company with one or two blockbuster patents, you can try, but more in a qualitative sense, than in actually valuing the patent. Put simply, if you are valuing Moderna and finding it close to fairly valued with a DCF model, you can argue that the MRNA patent that they have adds value (without specifying a number), justifying buying the company.
  2. If you are valuing a platform company (Netflix, Uber etc.), and you believe that there is optionality in the platform, explain why you think there is optionality (because they have sticky users that they are collecting information about that they can use to create new products or businesses) and whether that optionality will add a lot or only a little in value to your overall valuation. But don’t try to actually value the option to expand into new businesses….
  3. If you are valuing a natural resource company, you can see if you can find information on undeveloped reserves and give it a shot, but here again, don’t over reach. In fact, focus more on what we talked about in class about the level and volatility in commodity prices affect value, with implications for your company.
  4.  If you are valuing a money-losing company, but one that also has lots of debt (40% or more of market value), you will find the most tangible application of options. While we will not get to that until Monday in class, you can watch the in-practice video that I will put up tomorrow to see if you can apply it to your company. I have a spreadsheet that can help in valuing the real option in these companies: https://pages.stern.nyu.edu/~adamodar/pc/equity.xlsx 

Ultimately, for most of you, the real option add-on will be non-existent or, at best, qualitative, and perhaps be incorporated into your recommendation on whether to buy or sell the stock.
4/28/23 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: http://www.stern.nyu.edu/~adamodar/podcasts/Webcasts/optiontodelay.mp4
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 sixteen 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, 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

Attachment: Issue 12 (April 29)

Tomorrow, we will first look at equity as an option, and towards the last half of the class turn our attention to the many sins in acquisition valuation and as a precursor, I have attached a 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 May 1, to 5.14%, reflect the carnage that we have seen in stocks in the last two weeks. You can update the equity risk premiums worksheet in the fcffsimpleginzu spreadsheet, by just updating the US premium from 4.24% to the May 1, number. 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.
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 5 (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 are moving, 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 2021, which is implausible and perhaps even impossible. You may have used financial statements ending as of December 31, 2022, but you certainly did not value your company on December 31, 2022. The date of your recommendation is May 8, and while your DCF valuation may precede that date, you are using it as your estimate of value on May 8.
Finally, no matter how many mixed messages I have sent (and I am sorry), the final exam is on May 10. See you soon!
I am sorry if you found 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. I briefly mentioned the InBev/SABMiller merger in class but if you want something more extensive, I am going to offer you the blog post that I did on it when it happened:
If you look towards the bottom on the post, you will see a YouTube video on the merger.
I go through the process of valuing control and synergy in a merger, and even if you don’t agree with my assumptions, the framework can still be useful.

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. 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. That does not make pricing pointless but it can give you a pricing for your stock that is very different from your intrinsic value.
2. 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.
3. With the market regression, and you can use mine (https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/MReg23.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.
4. 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. 

In this class, we continued to make a case against acquisition practices, with transaction multiples, accretion and defensive deals all under fire, before looking at the narrow pathways to generating value from acquisitions (go small, buy private, focus on cost synergies). We then started our discussion of value enhancement,  by drawing a contrast between price and value enhancement. With value enhancement, we broke down value change into its component parts: changing cash flows from existing assets, changing growth rates by either reinvesting more or better, lengthening your growth period by creating or augmenting competitive advantages and lowering your cost of capital. We then used this framework to compute an expected value of control as a the product of  the probability of changing the way a company is run and the value increase from that change (optimal - status quo value). Also, as I noted in my start-of-the-class pointers, the best way to summarize your DCF is with the story worksheet in your valuation spreadsheet. Keep your verbiage to a minimum, focus on the task on hand and don’t forget to make your recommendation.

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 8, 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). You can add two three extra pages for each additional company to the limit; with 7 companies, the page limit is 19 21 pages.  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 10, 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
I won’t take much of your time, since you have a great deal on your plate. However, if you have lingering questions about the project, the final exam or life in general, I will have zoom office hours today, tomorrow and on Sunday.
Friday, May 5: 12 pm - 1 pm: https://nyu.zoom.us/j/94717110822
Saturday: May 6: 12 pm -1 pm: https://nyu.zoom.us/j/94717110822
Sunday: May 7: 12 pm - 1 pm: https://nyu.zoom.us/j/94717110822
Note that the zoom link is the same for all three sessions to make it easier for you to find it
5/5/23 Sorry to bug you with a second email, but I wanted to alert you to a change in the subject for the final project submission (due on Monday). I had originally listed “The Grand Finale” as the subject, but it turns out that there are variants of that phrase, with accents and without, and rather than deal with those variants, I am going to change the subject for your final project to “The Fat Lady is Singing”. I apologize to those who may feel that I am picked on people with weight issues, but the fat lady in question is an opera singer, and her singing usually is the end of the act. Here is the Harry Potter version: https://youtu.be/pxjpWPJo8vM 
5/7/23 My emails around this time in the semester get playful, with talk of the fat lady gargling and clearing her throat, but my heart is not in a mood for play today. As you have undoubtedly learned by now, Franco and Sergio, two of our best and brightest (they were both constants in my corporate finance classes) were killed yesterday in Puerto Rico. I knew them only a few weeks, but their kindness, humor and humanity left me wanting to get to know them better.  If any of you were close or feel shaken enough by this news that you find yourself unable to focus on completing the project or doing the final exam, talk to me, though your options may be limited to delay or take an incomplete, if you are graduating.  In the meantime, life keeps grinding on, and if you have the numbers to enter into the master spreadsheet, I would love to get them. I will put a presentation together for tomorrow’s class and send it to you just ahead of class (and I may cut it close, but check your email in the 30 minutes before class). Finally, even if you have spent the semester in virtual class, I would really like to see you physically in class tomorrow for the final session
I hope to see you all in class today, in person. The slides I will be using are in the link (Use a different browser, if you have an issue)
Thank you for coming to class today, after I subjected you to a brutal weeken d 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, prici ng 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 6 pm - 7 pm, New York time. The zoom link is below:

I know that you are in the midst of getting ready for the final exam, and I am sorry to interrupt. There are three questions seems to be coming up on the real options problems and I am afraid that I have contributed to the confusion. So, here is some clarification:
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.
5/11/23 The final exams are done and can be picked up in the usual spot (the ninth floor of KMEC on the top shelf on the bookshelves just before you enter the Finance department). I am attaching the grading template and I did give liberal partial credit. So, if there is a surprise, it is hopefully on the upside. That said, if you do find a mistake that goes in your favor, please copy the page and email me with your grading question. As for a distribution, it is pointless, since the final grades should be up soon.
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 (the answer to the last is always the "Yankees").  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…) My children tell me that TikTok is the social media platform of the day. Perhaps, my next online valuation class should be on TikTok…. 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!