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Chapter Outlines and overheads: These are saved as pdf files, and you need Web Casts: These are webcasts of the lectures from the valuation class that I. Investment valuation: tools and techniques for determining the value of any asset / Aswath Damodaran.—3rd ed. p. cm.—(Wiley finance series) Includes. the 'bigger fool' theory of investing, which argues that the value of an asset is When using a valuation done by a third party, the biases of the analyst(s) doing.
Dana Corp in Illustration Estimating a Regression Beta for Boeing Illustration 8. Ford Illustration 8. The Value of Control at Digital Illustration Equity Value and Volatility Illustration Valuing Chez Pierre for sale Illustration
June Illustration Valuing a dental practice Illustration Valuing the Option to Delay a Project Illustration Valuing a Patent: Avonex in Illustration Valuing Biogen as a firm Illustration Valuing an Oil Reserve Illustration Valuing an oil company - Gulf Oil in Standard deviations in firm value and equity value by industry group in the United States.
Estimate the value of an option to delay an investment. Estimate the value of a patent. Estimate the value of an undeveloped natural resource reserve. Valuing an Option to Expand: Ambev and Guarana Illustration Considering the value of the option to expand Illustration Valuing an Option to Abandon: Airbus and Lear Aircraft. This spreadsheet allows you to estimate the value of the option to expand a project to cover new markets or new products, using the Black-Scholes model. Estimate the value of the option to abandon an investment.
Estimate the value of financial flexibility as an option. Valuing Equity as an Option Illustration Firm Value and Equity Value Illustration Equity Value and Volatility Illustration Probabilities of default and Default Spreads Illustration Estimate the value the equity in a troubled firm as an option.
Potential for value creation from divestiture: Boeing Illustration Operating Margin Comparisons Illustration Tax Burden and Valuation Illustration Value Enhancement at SAP: Value Enhancement at Blockbuster: Status Quo Value versus Restructured Value. There is a dataset on the web that summarizes operating margins, tax rates and non-cash working capital as a percent of revenues by industry group for the United States.
There is a dataset on the web that summarizes returns on capital and reinvestment rates by industry group for the United States. There is a dataset on the web that summarizes debt ratios and costs of capital by industry group for the United States. This spreadsheet allows you to estimate the approximate effect of changing the way a firm is run on its value.
This spreadsheet allows you to convert a discounted cash flow valuation into an EVA valuation and vice versa. Valuing a company facing threat of nationalization Illustration Valuing a company facing shifting regulatory risk Illustration Decision Tree Analysis: Valuing a Young Pharmaceutical Company Illustration Valuing an oil company: Estimates the value of a straight bond convbond.
Estimates the value of a convertible bond. Chooses the right model to value your firm.
The supporting material includes: Chapter Outlines and overheads: These are saved as pdf files, and you need Adobe Acrobat to read them. You can download Adobe Acrobat by going to the Adobe site.
To go to overheads, click here.
Derivations and Discussion: These represent interesting questions that often come up in the context of the specified topic, with discussions and analyses.
These are readings from business and academic publications that supplement the specific topic. The solutions to each chapter are at the end of each chapter in the web site below. Powerpoint Presentations: These are power point presentations that are designed for use by instructors. You will need the password to download these as well. These are spreadsheets that supplement the topic. They are in Microsoft Excel, and can be used on either a Mac or Windows system.
These are useful datasets to supplement each chapter. They generally include industry averages for key variables and represent updates on many of the tables in the book. Web Casts: These are webcasts of the lectures from the valuation class that I teach at Stern.
You can use the lecture notes and the text book to follow the lectures. Introduction to Valuation. How do you keep bias out of your valuation? What is the cost of having more detail in valuations? Download as pdf file. Illustration 2. Effects of mismatching cashflows and discount rates Illustration 2. The potential for misuse with comparable firms. Is there an easy way to tell if a cashflow is an equity cashflow or a firm cashflow? What is the difference, if any, between discounted cashflow and asset based valuation?
An open letter to Warren Buffett from a non-admirer. Operating margins, turnover ratios and returns on capital of firms in the United States, classified by industry. Return on capital, debt equity ratios, book interest rates and returns on equity of firms in the United States, classified by industry.
Working capital ratios for firms in the United States, classified by industry. Interest coverage and fixed charge coverage ratios for firms in the United States, classified by industry. Book value debt ratios and market value debt ratios for firms in the United States, classified by industry. Compute the profitability ratios for a firm, based upon financial statement data. How different are accounting rules in different countries?
How do you value a company when you do not trust the accounting statements? Why is the marginal investor assumed to be diversified? How do I estimate historical standard deviations and variances? How about correlations and covariances? What makes your stock price go up or down?
There is a dataset on the web that summarizes standard deviations and variances of stocks in various sectors in the United States. This spreadsheet allows you to estimate the value of a short term option, when the expected dividends during the option life can be estimated.
This spreadsheet allows you to estimate the value of an option, when the underlying asset has a constant dividend yield. This spreadsheet allows you to estimate the parameters for a binomial model from the inputs to a Black-Scholes model. This spreadsheet allows you to estimate the value of an option, when there is a potential dilution from exercise.
How do I make sure that the inputs to the Black-Scholes model are consistent? Will the Black-Scholes and Binomial models give me different values and why? How do my views on market efficiency affect how I approach valuation? Survival bias in mutual fund performance Bogle on picking mutual funds Crazy market is tough to beat Summarizes historical returns on stocks, T. Bonds and T. Bills going back to This dataset includes default spreads for bonds in different ratings classes.
Contains the updated ratings for countries and the risk premiums associated with each. Shows the inputs used to calculate the premium in each year for the U. This spreadsheet allows you to estimate the implied equity premium in a market. Should I use the government bond rate of the country where my firm is located as my riskfree rate?
What if I have a firm with operations in different countires and cashflows in different currencies? When would I use the arithmetic average risk premium as opposed to the geometric risk premium?
Why is the historical premium so much higher than the implied premium in the United States? Greenspan testimony Historical Risk premiums: A reexamination. Updated betas and unlevered betas by business sector in the United States. Costs of debt, costs of equity, debt ratios and costs of capital, by industry group, for firms in the United States. Estimate the accounting beta on a division or firm. Run a regression of stock returns against market returns and estimate risk parameters.
Estimate the unlevered beta for a firm and compute the betas as a function of the leverage of the firm. This spreadsheet allows you to estimate the synthetic rating and cost of debt for any firm.
This spreadsheet allows you to convert operating lease expenses into debt. This spreadsheet allows you to convert book values of debt into market values.
When can I use the regression beta as my estimate of beta in a valuation? When estimating bottom-up betas by looking at comparable firms, how should I define comparable firms?
Should I adjust the beta for a firm's size or other characteristics? Can I use the yield to maturity on a bond issued by the company as the cost of debt? If I have an actual rating, do I need to even estimate a synthetic rating? How can I build a more complete model for estimating ratings? Can I use book value of debt as a proxy for market value of debt? What should be in my market value of equity? A contrary view on betas Margin of Safety.. An alternative to beta?
How do you know if a one-time charge or income is truly one time? One-time Write off? When would you include cash in working capital to compute cash flows? What marginal tax rate do you use when you have a firm that operates in multiple countries with different tax rates? What will happen to value if you ignore acquisitions when estimating capital expenditures?
Special Purpose Entities. There is a dataset on the web that summarizes historical growth rates in earnings and revenues by industry group for the United States. There is a dataset on the web that summarizes reinvestment rates and return on capital by industry group in the United States for the most recent quarter.
This dataset on the web summarizes operating margins, by industry, for the United States. This spreadsheet allows you to estimate the expected growth rate in operating income for a firm where the return on capital is expected to change over time.
Why might analyst estimates of growth deviate from the fundamental growth rate? Can you use historical, analyst and fundamental growth rates in the same valuation?
Can the fundamental growth rate be negative? The inside of earnings growth in the s Evaluating analyst growth estimates Return on Capital, not growth This dataset on the web summarizes the average levered and unlevered betas, by industry group, for firms in the United States. This dataset on the web summarizes the returns on capital equity , costs of capital equity and excess returns, by industry group, for firms in the United States.
This dataset on the web summarizes the debt ratios and costs of debt, by industry group, for firms in the United States. This dataset on the web summarizes retention ratios, by industry group, for firms in the United States. This dataset on the web summarizes the reinvestment rates, by industry group, for firms in the United States.
Solves for the return on capital implied in terminal value assumptions about growth and reinvestment. Can I use a growth rate higher than the growth rate of the economy as my stable growth rate if my firm is a well-managed firm or if it has other stellar qualities? When would you use liquidation value instead of terminal value? How do you estimate terminal multiples from fundamentals?
Competitive Advantage Period. Can you value stocks that do not pay dividends with the dividend discount model? How do you allow for stock buybacks in the dividend discount models? How does the personal taxation of dividends affect the value of a share? The Dividend Discount Model The dividend yield matters There is a dataset on the web that summarizes dividends, cash returned to stockholders and free cash flows to equity, by sector, in the United States.
This spreadsheet allows you to estimate the free cash flow to equity and the cash returned to stockholders for a period of up to 10 years FCFEst. This spreadsheet allows you to value the equity in a firm in stable growth, with all of the inputs of a stable growth firm FCFE2st.. This spreadsheet allows you to value a firm with a temporary period of high growth in FCFE, followed by a transition period, followed by stable growth.
Why do firms not pay out their free cashflow to equity as dividends? What is the link between corporate governance and the use of FCFE models? Microsoft faces a call to pay dividends. What is the key difference between the cost of capital and APV approaches? When is it more appropriate to use the APV approach to value firms? Adjusted Present Value with growth and changing cost of capital. Consolidated versus Separate Valuation Illustration Cash Invested at below market rates Illustration Discount for Poor Investments in the Future Illustration Valuing a closed-end fund Illustration Valuing Holdings in other company Illustration Fully Diluted Approach to estimating Value per Share: Cisco Illustration Treasury Stock Approach: Option Value Approach: There is a dataset on the web that summarizes the value of cash and marketable securities by industry group in the United States for the most recent quarter.
This spreadsheet allows you to value the options outstanding in a firm, allowing for the dilution effect. How do you value holdings of private companies? What do you do about minority interests? How is the valuation of executive stock options different from the valuation of other options? Option backlash at companies Options at dot. Do you make fewer assumptions when you use multiples than when you do discounted cashflow valuation? There is a dataset on the web that summarizes price earnings ratios and fundamentals by industry group in the United States for the most recent year vebitda.
There is a dataset on the web that summarizes value to earnings multiples and fundamentals by industry group in the United States for the most recent year. This spreadsheet allows you to estimate the price earnings ratio for a stable growth or high growth firm, given its fundamentals. This spreadsheet allows you to estimate firm value multiples for a stable growth or high growth firm, given its fundamentals. How do outstanding options affect PE ratio comparisons? Should you look at earnings before or after extraordinary items?
There is a dataset on the web that summarizes price to book and value to book multiples and fundamentals by industry group in the United States for the most recent year. This spreadsheet allows you to estimate the price to book ratio for a stable growth or high growth firm, given its fundamentals.
How do stock buybacks affect price to book ratios? When do price to book ratios and value to book ratios convey the most information? Price to Book Value Bargains. There is a dataset on the web that summarizes price to sales and value to sales ratios and fundamentals by industry group in the United States for the most recent year. This spreadsheet allows you to estimate the price to sales ratio for a stable growth or high growth firm, given its fundamentals. What is the argument for using sector-specific multiples?
When do sector-specific multiples work best? Value per customer? An analysis of Amazon's value Value to Vision?
A New Ratio. Estimates the value of a financial service firm from the expected excess returns in the future. How do you factor in regulatory constraints and rules into the value of a bank or financial service firm? How does the quality of a bank's loan get reflected in its value? Creative Accounting at Banks. How do you differentiate between earnings drops that are temporary and those that are long-term? How do you assess the probability of bankruptcy?
How do you estimate distress value? Warning signs of distress Valuing Distressed Firms. How do you estimate revenue growth in future years for a young firm with no history?
How do you consider the possibility that a young firm may not survive? Six Myths about the valuation of technology companies. How can a private business owner maximize the value of the business for sale? Restricted stock discounts. How should the value of synergy be apportioned between the bidder and target firms?
How do you factor the effect of rent control into the value of a building? How do you value vacant land? What is the difference between valuing cash-flow generating assets and collectibles? How do you reduce the impact of the "key person" in a valuation?
Art as an investment. Why, if a patent is an option, will firms ever exercise the option develop the patent? When would you use option pricing to value a firm with patents? When does it make sense to add a premium for the option to expand? How does financial flexibility affect how much firms borrow and how much cash they hold? Real Options and Business Strategy How much is flexibility worth? Get Real Reality Check: What are the implications of viewing equity as an option for vulture investing?
What are the implications of viewing equity as an option for lenders to firms?
Vulture Investing. Is there a "best way" to restructure? In order to be successful at this endeavor, you must have a firm understanding of the proper valuation techniques. One valuation book stands out as withstanding the test of time among students of financial markets and investors, Aswath Damodaran's Investment Valuation. Now completely revised and updated to reflect changing market conditions, this third edition comprehensively introduces students and investment professionals to the range of valuation models available and how to chose the right model for any given asset valuation scenario.
This edition includes valuation techniques for a whole host of real options, start-up firms, unconventional assets, distressed companies and private equity, and real estate. All examples have been updated and new material has been added. This indispensable guide is a must read for students wishing to gain a better understanding of investment valuation and its methods.
With it, you can take the insights and advice of a recognized authority on the valuation process and immediately put them to work for you. Stern School of Business. He has been the recipient of numerous awards for outstanding teaching, including the NYU university-wide Distinguished Teaching Award, and was named one of the nation's top business school teachers by BusinessWeek in In addition, Damodaran teaches training courses in corporate finance and valuation at many leading investment banks.
His publications include Damodaran on Valuation: