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Valemail

 


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:

Have fun with them!

Date
Email content
1/14/20
I am sure that you are finding that break is passing by way too fast, but the semester is almost 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? Is Uber cheap at $30/share? And was WeWork ever worth any money? Is there a market bubble? What is the value added or destroyed by the Kardashians? Are the Dallas Cowboys really worth more than the New York Yankees? Is there a Trump effect on markets and if so what is it? If you have not visited my blog, I put my thoughts down on these issues (though I am still working on the Kardashian valuation):
Incidentally, I know that this class is called Equity Valuation in the syllabus but I prefer to title it “Valuation” and it is exactly the same class that I will teach the MBAs this spring. Trust me! If they can do it, you can do it too!

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... If you want to get a jump on the class, you can go to the class web page:
The only prior knowledge that I will draw on will be in basic accounting, statistics and present value. If you feel insecure about any of these areas, I have short primers on my web site that you can download by going to

2. Syllabus & Calendar: The syllabus for the class is available on the website for the class 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. The final exam date has not been set yet, but when it is, I will let you know.

3. Lecture notes: The first set of lecture notes for the class should be available in the bookstore by the start of next week. If you want to save some money, they can also be printed off online (if you want to save some paper, you can print two slides per page and double sided). To get to the lecture notes, you can try
Please download and print only the first packet on discounted cashflow valuation. If you want to save paper, you can download the pdf file on you iPad, Android or Kindle and follow along... 

4. Delivery choices: I hope to see you all in class for every session, but there are two supporting delivery mechanisms that I would like you to take advantage of:
a. iTunes U: I will also be posting the material for the class on iTunes U. If you have never used iTunes U, you need an Apple device (iPad or iPhone) and have to download the iTunes U app (free). Then use the enroll code: ENT-ZXA-JYL.
I really like the set up and I think you may enjoy it too. If you have an android, it is a little more involved, but try downloading Tunesviewer, an Android app that lets you use iTunes U.
b. YouTube Channel: There is a final 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.
When you get a chance, check it out.

5. Books for the class: 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. If you can get the Asian edition, even better. It is exactly the same book and costs about a third. 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 

6. 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 a couple of weeks, in class on Monday, January 27 at 3.30 pm in Paulson Auditorium. We are going to have fun, (or at least I am, and you are welcome to join in. Until next time!

1/21/20
I know that week one is approaching and one of the themes of this class will be that while your valuation looks like a collection of numbers, the story that holds these numbers together is the glue. Consequently, to get a handle on valuation, you have to learn to navigate that space between stories and numbers and your skills have to be broad. I know that you are still on break and that the last thing you want to do is reading, but if you do get a chance, please read this post that I have on my blog:
http://aswathdamodaran.blogspot.com/2016/08/investing-and-valuation-lessons-from.html 
The post was triggered by the awe I felt, looking up at Brunelleschi’s Duomo in Firenze this summer, but the thoughts are all investing/valuation thoughts. In fact, I jwrote a book on connecting stories to numbers and here is the post introducing the book (which became available about a year and a half ago).
http://aswathdamodaran.blogspot.in/2017/01/narrative-and-numbers-how-number.html 

If you did get a chance to read my long email last week (and I would not blame you if you skipped it), you probably missed the link to the lecture note packet that I said was available at this page:
http://www.stern.nyu.edu/~adamodar/New_Home_Page/webcasteqUGspr20.htm

Also, if you missed the first email, the email chronicles will record them for posterity and you can find them by going to this link:
http://www.stern.nyu.edu/~adamodar/New_Home_Page/eqUGemail.html 

That is about it for the moment. If you want to get ready for the class, start by keeping up with the business news for the next week. See you next week in class. 
1/27/20
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://people.stern.nyu.edu/adamodar/New_Home_Page/eqUGemail.html
This chronicle will be updated at the end of each week to include all emails sent up until then. There were three handouts in class today and you can find the links in the email I sent out earlier today. The final exam is scheduled for May 15 from 2 pm- 3.50 pm.  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 laid out the philosophical foundations for valuation, by noting that it is a bridge between story and numbers and that it is different from pricing. Next session, we will spend a little time talking about the project that will run through the entire semester, but you can get a jump by trying to find a group and a company (each of you will be doing a company)
  1. Group: Please do find a group to nurture your valuation creativity, and a company to value soon. 
  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 2017) 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 cast for the first class are up and running (or at least the streaming version). You can access it by going to: http://people.stern.nyu.edu/adamodar/New_Home_Page/webcasteqUGspr20.htm. The links to iTunes U and YouTube will also be up shortly.
  4. Lecture Note Packets: You can wait for the bookstore to get its act together and get the packets ready or you can get a jump by downloading the lecture note packet online. It is available at the top of the webcast page (see link above) in either pdf or ppt format. 
  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.
I had also mentioned my blog as the venue that I post my most recent ruminations on markets, and I just posted the second of the data updates that I do at the start of each year 
https://aswathdamodaran.blogspot.com/2020/01/data-update-2-for-2020-retrospective-on.html

It looks back at a very interesting decade, one where I learned more about all the things that I still have to learn.

Attachments: Post-class test and solution.

1/28/20
1. Valuation of the week: I know that you have been told that valuation is boring and I am going to try to prove that wrong with your first valuation of the week.  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;
http://aswathdamodaran.blogspot.com/2015/12/intergalactic-finance-valuing-star-wars.html
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:
http://www.stern.nyu.edu/~adamodar/pc/blog/StarWars2015.xls
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 a few months ago. 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 last year, and those Baby Yodas sold out for Christmas (merchandising again). 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: Have fun, you must!

2. Calendar and Syllabus: I know that I have sent this out multiple times before, but one more time cannot hurt:
Calendar: https://calendar.google.com/calendar?cid=c3Rlcm4ubnl1LmVkdV9iamlvMzU0ODE0NTFkdHFjOW92bW1oazhmc0Bncm91cC5jYWxlbmRhci5nb29nbGUuY29t (I added the project time line this morning, in case you are interested)

3. Start of the class and class-end rituals: We will start every session with a start of the class test, previewing the material for the session but with no grades/pressure and we will end every class with a post-class test, with a solution, against not graded. You will see the first of the start of the class tests tomorrow and just to give you a heads-up, I have attached it to this email as well. You don’t need to understand valuation to answer this. Just use common sense!

Attachment: Bias test

1/29/20
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. 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 print off the packet or buy it at the bookstore (if it is available) and bring it to class. 

On a different note, as Stern students, you have access to S&P Capital IQ, an amazing database that includes financial information on all publicly traded companies and an easy way to download data on dozens of companies. While the primary documents you need to value your company will be its filings (annual report etc.), S&P Capital IQ will be useful for you to look up information on other dimensions. To access the data, you will need to put in a request and the details are in the document below:
This is a process designed for MBA students, and if you run into trouble, let me know. Until next time!

Attachments: Post-class test and solution.

1/29/20
The problem with technology is that you cannot live with it and you definitely cannot live without it. As those of you who were in today’s class know, the sound system failed catastrophically, which also means that the recordings of the classes have no sound. If you were unable to come to class, you will be unable to watch the class. I do have a fall back for you to use. I have a recording that I made last year for this same class, which actually goes all the way through the valuation introduction packet (we got through only page 8 in the actual class). If you are interested, you can try the recordings.
Webcast, streamed (need a good internet connection): https://nyustern.mediasite.com/Mediasite/Play/933dc70777fe4c9bb05029f5a4c56c581d 
You can even watch it, if you were in the class, and it passed by in a haze. I am sorry, but that is the best that I can do. Until next time!
1/30/20
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. 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 print off the packet or buy it at the bookstore (if it is available) and bring it to class. 

On a different note, as Stern students, you have access to S&P Capital IQ, an amazing database that includes financial information on all publicly traded companies and an easy way to download data on dozens of companies. While the primary documents you need to value your company will be its filings (annual report etc.), S&P Capital IQ will be useful for you to look up information on other dimensions. To access the data, you will need to put in a request.
This is a process designed for MBA students, and if you run into trouble, let me know. Until next time!

1/29/20
The problem with technology is that you cannot live with it and you definitely cannot live without it. As those of you who were in today’s class know, the sound system failed catastrophically, which also means that the recordings of the classes have no sound. If you were unable to come to class, you will be unable to watch the class. I do have a fall back for you to use. I have a recording that I made last year for this same class, which actually goes all the way through the valuation introduction packet (we got through only page 8 in the actual class). If you are interested, you can try the recordings.
Webcast, streamed (need a good internet connection): https://nyustern.mediasite.com/Mediasite/Play/933dc70777fe4c9bb05029f5a4c56c581d 
You can even watch it, if you were in the class, and it passed by in a haze. I am sorry, but that is the best that I can do.
1/30/20
This is the first project-related email that you will be getting. Remember that every Thursday is project email day, and in this one, I want to make sure that you
  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 7 (that limit is for your own projection).  If you are being ostracized and no one wants you, I would suggest some therapist time in the near future, but for the moment, you can add your name to what I will call the orphan list for the class: https://docs.google.com/spreadsheets/d/1gjlvbVj7YgzAqOZY5SODBnUNVLx88k5BVrWyFUCQbn8/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. 
  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). It is truly a remarkable dataset with hundreds of items on tens of thousands of public companies listed globally, including corporate governance measures. I sent you the instructions on how to sign up in yesterday’s email. 

On a different note, I mentioned that you have two teaching fellows for this class. Their names and email addresses are below:
1.Courtney Go,  courtney.go@stern.nyu.edu
2.Samuel Mackey, smm792@stern.nyu.edu

They will be holding weekly review sessions on Tuesdays from 12.30- 1.30 every week, starting week after next (February 11) and you can sign up, if you are interested in the google sheet below:
https://docs.google.com/spreadsheets/d/1wFqamsj9ARHZQdVvLsuecZjAFrZ3O70HNGeTcfiQCPE/edit?usp=sharing 

Finally, I just put up my Tesla valuation update, after it blew out expectations on its earnings release yesterday:
https://bit.ly/2S2vSF9 
If you get a chance, browse through it. Until next time!
1/31/20
Two quick notes. 
1. Valuation Tools Webcast #1: The first is that I did put up the first valuation tools webcast on the basics of data collection. I know that many of you still pondering your company choices and group dynamics, but if and when you pick a company, the first step is to get the raw material you need for your valuation. These include data on the company (annual reports, regulatory filings like the 10K/10Q), sector wide data (numbers for other companies in your sector) and macro economic data. I know that many of you already know exactly how to do this. However, if you feel uncertain, you can try this webcast out.
It is about 15 minutes long & not very professionally produced. So, ignore the bad light and bobbing head and focus on the content!

2. Class Announcements: As should have been obvious, this is a big class with close to 300 people in it. That makes it a great venue for announcements that you may want to make about club activities or events. I will open each class session by allowing one announcement. If you want to make an announcement, please sign up for it as well in the Google shared sheet below:
Until next time!
2/1/20

Nothing earth shattering to report after the first week. I hope that you have a fun weekend planned, because I have nefarious plans to ruin your next 15 weekends. If you have a group, enjoy it with them. If you don’t, find one. If you are ostracized and feel abandoned, join the orphan list that I sent out earlier this week. 

Attachment: Newsletter #1 (2/1/20)

2/2/20
It is Super Bowl Sunday and I hope that you find a party. Remember that this is less about football and more about the chips and dip. Once you are done partying, though, please check on the following ahead of class tomorrow:
  1. If you missed a class, either physically or mentally, please watch the webcasts of the classes (even though the second session is a recorded webcast)
  2. If you have not found a group yet, I have heard that Super Bowl parties are good times to look for one. Please find a group.
  3. Start thinking about a company to value for the class or better still, pick a company.
  4. We will be starting on the first lecture note packet tomorrow. I am not sure whether the bookstore has the packets for sale, but if they don’t and you don’t waste your money anyway, download the first packet (and just the first one). You can find them here: http://www.stern.nyu.edu/~adamodar/New_Home_Page/webcasteqUGspr20.htm.  If you do, please don’t use the Stern printers to print the packet. It is 360 pages and its screws up the printers.
See you in class tomorrow!

2/3/20
We started class by completing the discussion of pricing and real options, at least in a big picture sense. We then 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:
http://aswathdamodaran.blogspot.com/2014/03/if-it-is-strategic-growth-investment-in.html
We then spent some time setting up the process of discounted cash flow valuation, arguing for consistency in discounting. If the cash flows that you are discounting are cash flows to equity, estimated either as dividends or as potential dividends, the discount rate should be the cost of equity. If the cash flows that you are discounting are pre-debt cash flows, i.e,, cash flows to the firm, the discount rate has to be the cost of capital. Done right, the value of equity should be equivalent with both approaches. Try the weekly challenge that I will send out on Wednesday, if you do not believe me. Next session, we will start 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, but I think that four of the questions relate to risk free rates, which we have not covered yet. So, if you want to wait until Wednesday’s class, you might have an easier time. 

Attachments: Post-class test and solution.

2/4/20
In this valuation of the week, I am revisiting a company that I have visited many times before. It is Tesla, In June 2019, I valued Tesla at about $190 and since the stock was trading at $180, I bought it for the first time. You can find the valuation and the post at this link:
http://aswathdamodaran.blogspot.com/2019/06/teslas-travails-curfew-for-corporate.html
On Thursday (January 30), I revalued Tesla again, and came up with a value of $427. If your question is whether value can change that much in a  short period, with a stock like Tesla, my answer is yes. Since the stock was selling for $640, I sold the stock and I did so reluctantly, partly because those profits will now be treated as ordinary income (not capital gains).

 In the post, I explained that I was selling even though the mood was euphoric, and the momentum entirely on the upside, and the market confirmed that by pushing the stock up to $780 today. Needless to say, I’ve heard from quite a few people (mostly Tesla fans) asking me whether I regretted selling too early. You may not not believe me, but I don’t. I have to play the game I came to play and that game is a value game, and if try to play a game that I am not very good at, I risk going down a slippery slope. As the old Wall Street adage goes, you can be a bull or a bear, but never a pig, and I am thankful that I had a good ride on Tesla and it is time for me to move on.
https://aswathdamodaran.blogspot.com/2020/01/an-ode-to-luck-revisiting-my-tesla.html 
If you get a chance, open the spreadsheet that I have my valuation of Tesla from last week:
http://people.stern.nyu.edu/adamodar/pc/blog/TeslaJan2020.xlsx
Feel free to change what you think needs to be changed. The key levers are revenue growth, the target margin and the sales to invested capital. If you have been following Tesla (and have a point of view on the company), change the valuation to reflect your story. I know that some of you feel not quite ready to make big changes. So, make small ones. When you are done, go to this Google shared spreadsheet and enter what you found.(My numbers are already in there), 
https://docs.google.com/spreadsheets/d/13wH9MMB3jcozwL2LC1UVnuPLXpYw1eNqBM8EOjJMJZE/edit?usp=sharing 
2/5/20
We started the class with a discussion of risk 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:
http://aswathdamodaran.blogspot.com/2016/03/negative-interest-rates-unreal.html 
We just started on the discussion of equity risk premiums but the contours of the discussion should be clear.
a. Historical equity risk premiums are not only backward looking but are noisy (have high standard errors). You can the historical return data for the US on my website by going to
http://www.stern.nyu.edu/~adamodar/New_Home_Page/data.html
Click on current data, and look to the top of the table of downloadable data items.
b. Country risk premiums: In the next session, we will start talking about country risk premium If you want my estimates of country risk premiums, check under updated data on my website. The direct link is below:
Finally, The post class test and solution are attached and they are, like the last sessions tests, running ahead of the topics. Try doing the session 3 post class test and reserve this one for Monday.

Attachments: Post-class test and solution.

2/6/20
In class on Monday, we started with the claimholder consistency principle, arguing that there are two ways to value equity: discount cash flows to equity at the cost of equity or discount cash flows to the firm at the cost of capital and then subtracting out debt. Done right, I argued that you should get the same answer. I hope that you will have a chance to try the first weekly challenge. It starts simple but it will test you on your implicit assumptions about valuation. It does not have to be turned in to me and it will not be graded. I will post the solution on Sunday and you can check your answer out. Just another prod on the project. Please pick a company and find a group soon.

On the project front, please find a group and pick a company. If you have already done that, you can start on computing a risk free rate to use in your valuation, an easier task for some of you than others, but it will allow you to put into practice what we talked about in class yesterday. Also, please try to get access to S&P Capital IQ soon. I have again attached the pdf file that explains how.

Attachments: Capital IQ Access , Weekly challenge #1

2/7/20
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

Second, for those of you who were trying this week’s valuation of the week (of Tesla) and feeling a little lost about what growth rate or margins to use, I wrote a post yesterday containing not only a DIY valuation of Tesla but perspective on how to decide whether to use a 25% growth rate or a 35% growth rate. 
Have fun with it!

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:
If you read them all, it is the equivalent of drinking a six-pack. So, please don’t drive or operate heavy machinery! Until next time!
2/8/20
I hope that you are enjoying your first weekend back at school. I will intrude with a couple of notes. 

1. Teaching Fellows/Review sessions: Just a reminder about the TFs for this class. There are two:
I trust them to give you good advice and help, and they will have review sessions every Tuesday, starting February 11, from 12.30-1.30. The room is KMEC 3-110 and you can sign up in this Google shared spreadsheet:
https://docs.google.com/spreadsheets/d/1wFqamsj9ARHZQdVvLsuecZjAFrZ3O70HNGeTcfiQCPE/edit?usp=sharing

2. Newsletter:  The second newsletter for the class is attached. As I said, there 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. 

Have a great weekend! Until next time!

2/9/20
This week, we will continue with our discussion of discount rates by moving on to equity risk premiums. They are central not just to valuation but also to investing, since succinctly put, they represent the price of risk in the equity market. Specifically, I will take you through the process of estimating a forward-looking estimate of the equity risk premium and if you want to get a jump on this process, you may want to take a look at this spreadsheet:
http://www.stern.nyu.edu/~adamodar/pc/implprem/ERPFeb20.xlsx 
 I know that it looks complicated, but it is effectively computing an IRR for equities collectively, and using that IRR to back out an equity risk premium. 
2/10/20

In the session today, we started by doing a brief test on risk premiums. After first laying the foundations of country risk, and a brief foray into measuring a company’s exposure 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 2020. Play with it when you get a chance. Post class test and solution attached.

Attachment: Post class test and solution

2/11/20
For this week, I thought I would switch gears and value a very different company from last week’s hot mess which was Tesla. 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 last year. The place to start this valuation is with the Aramco IPO, a document written by bankers for bankers, and hence thoroughly boring:
https://www.saudiaramco.com/-/media/images/investors/saudi-aramco-prospectus-en.pdf?la=en&hash=8DE2DCD689D6E383BB8F4C393033D8964C9F5585 
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 
The excel spreadsheets containing my valuation of Aramco is here:
http://www.stern.nyu.edu/~adamodar/pc/blog/AramcoIPO.xlsx
Take a shot at valuing Aramco and when you are done, here is the Google shared spreadsheet:
https://docs.google.com/spreadsheets/d/1tZgac7chXgmMndLtTCZ9ZY3SNNqSGD5_8MPceQwAeFE/edit?usp=sharing
Until next time!
2/12/20 In today’s class, we started by reviewing the pitfalls of regression betas and  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.
In our next class, we will start on the cost of debt, starting with a definition of the cost of debt as a long term, current cost of borrowing and laying out a procedure for estimating this cost. Next session, we will complete the cost of capital discussion and move on to cash flows. I am attaching the post class test and solution for today's class. 

For this week’s weekly challenge, you will be looking at equity risk premiums. There is a lot of mythology about equity risk premiums and the best way to separate the truth from fiction is to look at the data. That is what we do in this week’s challenge. The attached dataset contains my estimates of implied ERP each year, with the T.Bond rate, the T.Bill and the Baa bond default spread each year. Your mission, if you accept it, is to play Moneyball with the data and to try and answer a few questions:
1. What, if any, relationship is there between the ERP and interest rates (T.Bond and T.Bill)?
2. What, if any, relationship is there between the ERP and bond default spreads?
3. Given interest rates today and the default spread today, what would you expect the ERP to be today?
4. Given the actual ERP, what does this tell you about stocks being cheap or expensive?
Have fun with the numbers. Pull out your statistical tools, rusty though they might be, and use them.

As I was sending this weekly challenge out, I realized that I never sent you the solution to the first weekly challenge. I have added the link to the webcast page for the class, but the link where you can find it is below:

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

2/13/20
I want to check to see where you are on the project. Assuming that you have picked a company, joined a group and downloaded the financials, I hope that you have estimated a risk free rate in the currency of your choice. Once you have that, please try the following:
  1. Get a geographical breakdown of the countries/regions of the world that your company operates in. It should be in your annual report or financial disclosure forms somewhere. If you cannot, those are the breaks… just move on. You can only work with the information that you have.
  2. Get the total equity risk premium and country risk premium for the countries/regions: If you want to do this yourself, the weekly challenge will give you a template. If you want to take a short cut and use my estimates of country risk premiums, that is fine too.
  3. Get a weighted average of the country risk premiums: You can use revenue weights of the country/region to compute the weighted average. You can use my equity risk premium estimates, by country: http://www.stern.nyu.edu/~adamodar/pc/datasets/ctryprem.xlsx
I will be posting two valuation tools webcasts tomorrow, one on the risk free rate and one on estimating equity risk premiums that you may (or may not) find useful.  I am not sure whether this will help you keep on track or freak you out, but I have opened a Google shared spreadsheet with everyone in the clas on it for the project. You can go in and input the data on your company as you get deeper and deeper into the project. 
I won’t use the Google spreadsheet in my grading. It is just so that you can see where you are on the project, relative to the rest of the class. Until next time!
2/14/20 Since this is a long weekend and you have nothing to do (just kidding), I have put up two valuation webcasts. The first one is on risk free rates and the second on implied equity risk premiums.

Risk free Rates
Additional material:

Implied Equity Risk Premiums

The webcast uses the February 2013 spreadsheet, but I have tweaked the spreadsheet a little bit and the cell numbers have changed in the updated version, but the process remain the same. I hope that you get a chance to watch one or both! Until next time!
2/15/20

The weeks are starting to build and class is well on its way. If you have been away, mentally or physically, please read the newsletter to see where we are and where we are going. I have also attached the corrected version of page 64 which was mangled in the lecture note packet. 

Attachments: Issue 3 (February 15)

2/17/20

I hope that your weekend went well. I also hope that you got a chance to try out the weekly challenge that I sent you. If you did, you got to test out your rusty excel statistics tools or perhaps Minitab. I am attaching both the weekly challenge and the solution. Give it a look, when you get a chance. This week, we will continue our DCF discussion by putting to rest discount rates tomorrow, and then moving on to earnings and cash flows. If you want to start applying what we talk about in class quickly to your company, I would suggest printing off your company’s most recent income statement and having it ready for the next phase of the class,

Attachments: Weekly Challenge #2 Solution

2/18/20
Moving right along, it is time for the valuation of the week, and this week’s company bears no resemblance to your first two. It is Heineken, the Dutch brewer, with a worldwide brand name. The reason that I am focusing on the company is not because I like its product, but because this is a valuation that I did in September 2019, in Euros, when the risk free rate was negative in that currency. Begin by reading this post on negative interest rates from 2016:
http://aswathdamodaran.blogspot.com/2016/03/negative-interest-rates-unreal.html 
You can continue by reading this piece that provides the background for the company and my valuation:
http://www.stern.nyu.edu/~adamodar/New_Home_Page/Valuationofweek/Heineken2019.html
You can download the historical data on the company here:
http://www.stern.nyu.edu/~adamodar/pc/blog/HeinekenHistory.xls 
You can download my valuation here;
http://www.stern.nyu.edu/~adamodar/pc/blog/Heineken2019.xlsx 
You are welcome to update the valuation to include the additional quarter of information that has come out, but not much has changed. Try playing with the risk free rate/stable growth rate combination, and I use the word “play” deliberately, since you are messing with first principles when you do so. When you are done, you can enter your number and an updated price into this Google shared spreadsheet:
https://docs.google.com/spreadsheets/d/1tSJbG5ZTkaBS2smQpAUn3AZFFIPamBj2NfhILSLjYho/edit?usp=sharing 
If nothing else, this will give you bragging rights, since 99% of people who do valuation for a living have not only never valued a company with negative risk free rates, but many in this group will claim it cannot be done. You can say it can and will be done.
2/19/20
In today’s class, we started with 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 the Federal Reserve site in St. Louis:
These are spreads on indices created by rating, updated daily. Neat, right? If you want to compute a synthetic rating for your company, try this spreadsheet:
As a bonus, it also capitalizes leases.

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.
Post class test and solution attached.  Finally, this week’s challenge is also attached, and it is about adjusting earnings for leases and R&D. I know that we have not grappled with the R&D adjustment in class yet, but give it your best shot. 

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

2/20/20
First things first. By now, I hope that you are in a group and have picked a company. If you have, you should be able to complete two basic tasks related to discount rates, estimating risk free rates and equity risk premiums. Along the way, you have to get comfortable with how to estimate implied equity risk premiums, and to further you on that path, I posted a webcast on equity risk premiums last week. Take a look at it, when you get a chance. Finally, I posted my fourth data update for this year, and since it is about topics that we have been talking about in class, I thought it may help. You can find it here:
https://aswathdamodaran.blogspot.com/2020/02/data-update-4-country-risk-and-currency.html
Finally, the second and third packets for the class (yes, there are three) are available to download on the webcast page for the class:
http://www.stern.nyu.edu/~adamodar/New_Home_Page/webcasteqUGspr20.htm 
2/21/20 This week, we started on earnings, and the best way to understand the process is by getting your hands dirty by working on your company’s most recent financials.  To help, I have posted two webcasts for this week, one on creating a 12-month trailing financial statement for your company and one on capitalizing leases. 
1. Trailing 12-month numbers:  In the webcast for this week, I look at how to compute trailing 12 month earnings from a 10K and a 10Q: 
The most productive use of the webcast is to print off the most recent annual and quarterly report for your company and work with your company’s numbers.
2. 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).
Please give them a look, when you get a chance.
2/22/20

Last week, we completed our discussion of discount rates and started on how best to estimate cash flows. This week, we will complete that discussion and move on to the scariest part of valuation, which is forecasting future growth and cash flows. The newsletter for the week is attached.

Attachment: Issue 4 (February 22)

2/23/20
This week, we will build on the discussion of earnings from last week by first bringing in capital expenditures and working capital, and then moving on to the really messy task of estimating future growth & cash flows. Also, if you had a chance to work on the third weekly challenge, the solution is at the link below in two parts:
http://people.stern.nyu.edu/adamodar/pc/wkch/wkch3.xls
http://people.stern.nyu.edu/adamodar/pc/wkch/wkch3ratings.xls
Even if you did not try the challenge, it may be worth reviewing. One final note. There are about 3 people in the class who are still looking for a group. If any of you have open slots in your group, please let me know.
2/24/20

In this session, we look at the process of first adjusting earnings for R&D and other capital expenditures (that accountants treat as operating expenses), and then move on to which tax rate to use in adjusting earnings and what to include in net cap ex and working capital. I know that I promised you an email about the first quiz and I will send it to you in a few minutes. You will also notice that there are no post class tests and solutions for this session. The post class test and solution are attached. The last question is about growth, but you can handle it.

Attachments: Post class test and solution

2/24/20
I promised I would deliver, and here you go. The first quiz is coming up and I wanted to cover some logistical details.
1. Quiz location and timingThe quiz will be from 3.30-4 on Monday, March 2. There will be an extra room to take the quiz. Please see below for where you should go for the quiz:
If your last name begins with Go to
A - H KMEC 2-60
I - Z Paulson
There will be class after the quiz. So, please come to Paulson, when you are done with your quiz.
2. Quiz coverage: The quiz will cover everything through cash flows (about slide 154); growth is not on this quiz. It will therefore include the big picture sessions on valuation, discount rates and cash flows.
3. Past quizzes: I am reposting the links to the quizzes from the past. Since some of the older quizzes contain questions that may  be a little tangential, I would suggest starting with the last quiz and working backwards.
As you work through these quizzes, please do remember that I will be grading the quizzes, not a computer or a TA. I grade on process. When you do your quiz, please show your work, with your solution and I am perfectly open to alternate solutions to problems, if I feel that you have been logical and consistent and used all of the information in the problem.
4. Quiz review webcast: 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)… 
I hope that you find it useful.
2/25/20
I am sorry to get this to you so late on a Tuesday, but I shelved my original plan of valuing Kroger (Berkshire Hathaway’s latest investment addition) in favor of the news of the moment. Without doubt, that is the market collapse that we have seen in the last few days, in response to news about the Corona Virus. I had talked about this a little bit during class yesterday, but it was  only partly formed then, and I spent a portion of today to pull together a more complete assessment of how the virus is affecting S&P 500 value. Start with this reading:
http://www.stern.nyu.edu/~adamodar/New_Home_Page/Valuationofweek/ViralMarketCrisis.html 
Follow up by downloading the spreadsheet I created to assess the impact on value drivers and value. 
http://www.stern.nyu.edu/~adamodar/pc/blog/S&PValueCorona.xlsx 
Change the numbers to reflect what you think about the virus and revalue the index. Once you are done, go to the Google shared spreadsheet and enter your numbers.
https://docs.google.com/spreadsheets/d/1uMao9YURI6NgtHAGFKGB23fsK_JYaDk0iETQb6sDNeU/edit?usp=sharing 
I would really like everyone to give this a shot. Honestly, it should not take more than 5 minutes, and if nothing else, you will get bragging rights that you have valued the Corona Virus. Just don’t catch it! 
2/26/20

We completed our assessment of cash flows, by looking at free cash flows to equity, or potential dividends and how that can be changed by altering your debt ratio. We started our discussion of growth by first looking at past growth and then looking at the limitations of analyst estimates of growth and then examining   the fundamentals that drive growth. Starting with a very simple algebraic proof that growth in earnings has to come either from new investments or improved efficiency, we looked at how best to estimate growth in three measures of earnings: earnings per share, net income and operating income. With each measure of earnings, the estimation of growth boiled down to answering two questions: (1) How much is this company reinvesting to generating for future growth? (2) How well is it reinvesting? (3) How much growth is added or lost by changes in returns on existing investments? In the next session, we will continue this discussion after the quiz.

Attachments: Post class test and solution, Weekly challenge #4

2/27/20
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 links I sent yesterday for the past quizzes and solutions. Since the link I sent yesterday included only a subset of the quizzes and stopped in 2016, I decided to update the files and create new links. Try these for all the quizzes through 2019, 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. 
2/28/20
I have two valuation tools webcasts for this week. 
1.Converting R&D to capital expenditures: We also talked about converting R&D from operating to capital expenses. I use Microsoft from a year gone by to illustrate this concept:
Incidentally, to add to your stress, I just want to remind you that the first quiz will be next Monday (on March 2). I will send you more information on the what and how this weekend

2. Accounting returns can be messy and misleading but they are a key input into estimating growth and the value of growth. In this webcast, I look at the process of estimating accounting returns, using Walmart as my example:
An updated version of the return calculator is attached.

Attachment: Return Calculator Spreadsheet

2/29/20
I know that you are busy and I have a guess about what you are working on. I have attached the newsletter, on the odd chance that you may want to take a look at it. Some final thoughts. Don’t drive yourself into a frenzy for the quiz. It is just a quiz, just 10% and if you do badly, you can make it go away. That said, it is better to do well than badly. So, good luck and see you in class on Monday (and don’t forget to go to the right room, at the right time):
If your last name begins with Go to
A - H KMEC 2-60

I - Z Paulson

Attachment: Issue 5 (February 29)

3/1/20
I’ll keep this brief since you are probably busy preparing (if you say, “for what”, I think that you are in big trouble). A reminder again about tomorrow’s quiz and quiz seating. The quiz is in the first 30 minutes of class (from 3.30-4.00) and it is open-book, open-notes but no laptops or connectivity. The seating is as follows:
If your last name begins with Go to
A - H KMEC 2-60
I - Z Paulson
There will be class after the quiz. So, please come to Paulson, when you are done with your quiz. There will be class after the quiz. Finally, in case you tried the weekly challenge this week, the solution is attached. 
3/2/20
I hope that you are fully recovered from the quiz trauma. Come on! It was not that bad. When the quizzes are done, I will post the solutions and send out instructions on pick up. So, stay tuned! 

During the session, I continued with the discussion of growth, moving from fundamental growth to how to estimate growth when returns on capital and margins are changing. I then spent some time on the terminal value calculation, and the rules to follow with terminal value. Since this will make or break your valuation, I would encourage you to watch this section until you have it nailed down. I have a series of five posts on terminal value that you may or may not find useful. Here they are:
  1. http://aswathdamodaran.blogspot.com/2016/11/myth-51-if-you-don-believe-in-forever.html 
  2. http://aswathdamodaran.blogspot.com/2016/11/myth-52-as-g-rto-infinity-and-beyond.html
  3. http://aswathdamodaran.blogspot.com/2016/11/myth-53-growth-is-good-more-growth-is.html
  4. http://aswathdamodaran.blogspot.com/2016/11/myth-54-negative-growth-rates-forever.html
  5. http://aswathdamodaran.blogspot.com/2016/11/myth-55-terminal-value-ate-my-dcf.html
They are not too painful to read. 

Attachments: Post class test and solution

3/3/20
The quizzes are done and you can pick them up on the ninth floor. To preserve order and prevent free for alls, a few rules for the pick up:
1. The quizzes are face down, in alphabetical order, in three piles. Please leave the piles in alphabetical order. Violators will be tarred, feathered and forced to run through Washington Square Park, wearing Lululemon apparel.
2. The quiz solutions are attached with a grading template. If you find an issue with your grading, bring in your quiz to me (not to the TAs.)  I have also attached a distribution, though it is way too early to read anything into the letter grades other than temporary gain/pain.  (Quiz 1a: had Kroll and Indian rupees in problem 1. Quiz 1b had Munger and Indonesian Rupiah in problem 1).
3. If you did take the quiz and cannot find it, first check with your friends, and if you still cannot find it, email me, and I can tell your score.
4. There are a few of you who seem to be live under two different names (Seriously, you need to stop…) . If the name you write on the quiz does not match the one of the school records, I have no way of knowing who you are. So, if you see a query about your name, please let me know who you are. And from this point on, please try to stick to the name you are registered under. 
5. For the person who wrote just their first name on the quiz, you are not Lebron or JayZ, and everyone does not know your last name(including me). So, please come in and give me your last name.
6. There are at least three people that I cannot find a registration for. If you cannot find your quiz, that may be one reason.

Attachments: First quiz (a or b) and check out the solution (a or b) as well as the distribution of grades for the class.

3/3/20

I know that there is almost no chance that you are still in the mood for valuation, but I thought I would still try with this week’s valuation of the week. I turn to one of my favorite companies to value, Uber. I first valued Uber in June 2014, got the story horribly wrong, but still learned from it. I have returned to Uber multiple times since, and did a series in 2015 on both the challenges for Uber specifically and the ride sharing business, in general.

http://aswathdamodaran.blogspot.com/2015/10/on-uber-rollercoaster-narrative-tweaks.html
http://aswathdamodaran.blogspot.com/2015/10/the-ride-sharing-business-playing-pundit.html
When Uber filed its prospectus in 2019 for its IPO, I jumped on the chance to read the prospectus and value it at the time:
Prospectus: https://www.sec.gov/Archives/edgar/data/1543151/000119312519103850/d647752ds1.htm 
Uber IPO post (with value link): http://aswathdamodaran.blogspot.com/2019/04/ubers-coming-out-party-personal.html
I valued the company at between $27-28 at the time, and the stock was initially offered at $45 before imploding in the weeks following. In October 2019, the stock was trending down and I revisited it in a more general post on 2019 IPOs lessons for public market investors:
http://aswathdamodaran.blogspot.com/2019/10/ipo-lessons-for-public-market-investors.html
My October 2019 valuation of Uber is available here:
http://www.stern.nyu.edu/~adamodar/pc/blog/UberOct19.xlsx
In fact, I bought Uber at between $28 and $29, doubled my holding when the stock unlocked and dropped to $27 and have had a good run since. If you get a chance, download the Uber 2019 valuation, update the numbers and come up with your current value for Uber and then enter the numbers in Google shared spreadsheet:
https://docs.google.com/spreadsheets/d/1Q_LzKETZIJonMhWJ9zdanIZ8-RPCgPEl_dReBpXhYks/edit?usp=sharing
3/4/20

In this session, we tied up our last few pieces of terminal value, with the emphasis that it is not growth that creates value, but excess returns. After briefly talking about choosing the right model to use to value your company, we started on the discussion of the loose ends in valuation by looking at how best to value cash and then moved on to the messier question of valuing cross holdings. We will continue to look at other loose ends next week. . The post class test and solution relate that terminal value section. I have also attached a weekly challenge built around terminal value, if you want to give it a shot. 

Attachments: Post class test and solution

3/5/20
I know that you just finished (and hopefully picked up) your first quiz and that you are probably in no mood for valuation. If you are, though, this would be a good week to take your company’s annual report apart and estimate the free cash flow to the firm and equity last year as well as accounting returns. If you have the historical data for your company, you can not only estimate historical growth in earnings per share but in other metrics as well (net income, operating income, revenues). While I almost never do a valuation based upon historical numbers, I find it useful as a platform for understanding the company and devising my story and forecasts for the future. If you want to see historical growth rates of all companies, broken down by sector, please visit this link:
Scroll down to historical growth, and you should see the data not just for US companies, but broken down globally and regionally. All these growth rates are in US dollars. In fact, if you have the time, use the spreadsheet below to do a first run valuation of your company (if it is non-financial service)
The spreadsheet has industry average data, a lease and R&D converted and a cost of capital calculator built into it. Hope you find it useful.
3/6/20
In this week’s webcast, I look at the terminal value and how to run diagnostic checks on it to make sure that you have been internally consistent and grounded while estimating this number. 
Webcast: http://www.stern.nyu.edu/~adamodar/podcasts/Webcasts/terminalvalue.mp4 
Sample DCF: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/webcasts/TermValueCheck/termvalueDCF.xls 
Diagnostic Spreadsheet: http://www.stern.nyu.edu/~adamodar/pc/termvaluecheck.xls
In fact, you have everything you need to run a DCF valuation of your company. Just do it! 
3/7/20

This may be your weekend to forget valuation, but I am afraid that I have to intrude. The most recent newsletter is attached. Also, if you have not picked up your quiz, and you are in school this weekend, please pick it up on the ninth floor of KMEC. 

Attachment: Issue 6 (March 7)

3/8/20

This coming week will be our last week of classes before the break. That is both good news and bad news. The good news is that you will be blessedly free of my harassment for a week or so. The bad news is that we are now half way through the semester. So, if you have not picked a company, you should. If you have, you should have the financials. If you have the financials, you should be working on the valuation. I think you get the picture. I have also attached the solution to this week’s challenge. 

Attachment: Weekly Challenge Solution

3/9/20
Today we put the last loose ends to rest. First, we completed the discussion of cross holdings and why they are so difficult to deal with in valuation. Second, well looked at complex businesses and how to incorporate our concerns into value. Then, we went back and looked at defining debt. While we used a narrow definition of debt, when computing cost of capital, we argued for using a broader definition of debt, when subtracting from firm value to get to equity value. Next, we talked about how best to deal with both currently outstanding employee options and potential options grants in the future. With the former, we argued for using an option pricing model to value the options and netting that value out of equity value, before dividing by the number of shares outstanding. With the latter, we suggested incorporating the expected cost into the operating expenses, thus lowering future earnings and cash flows. If you are still a little shaky on why stock-based compensation should not be added back as a non-cash expense, please read this post:
http://aswathdamodaran.blogspot.com/2014/02/stock-based-employee-compensation-value.html
Again, I plead (beg, cajole) that you keep moving on your DCF. It is daunting if you just keep thinking about doing it. It is actually much easier to just do it. 

Attachments: Post class test and solution

3/10/20
By now, you have probably heard that NYU has decided to move classes online starting with Wednesday’s class and going through at least the first week after the break (March 11, March 23 and March 25). I am still wrestling with the most effective way to do this. I could use Zoom and teach the classes live, but I have to check to see whether it can accommodate 250 people. One way or the other, we will get the classes in, do valuations of the week, talk about the events of the day and keep working on your valuation projects. Since next week was scheduled to be spring break, I was planning to give you a week off emails, and I will stick with that plan. More on this later today!

Finally, I know that today is usually the day I post a valuation of the week. Given the turmoil in the market, it is unlikely that any of you can get your heads wrapped around individual companies, but I decided to give a shot at valuing Zoom. You can find the financials and my valuation at the links below:
Online meeting market information: https://financesonline.com/video-web-conferencing-statistics/  (Note that this came out before the Corona Virus and reflects the expectations then)
Zoom’s prospectus: http://www.stern.nyu.edu/~adamodar/pc/blog/ZoomProspectus.pdf
Zoom’s updated financials: http://www.stern.nyu.edu/~adamodar/pc/blog/ZoomFinancialsMarch2020
I tried to value Zoom this morning ant it is very much of on the fly valuation. 
My valuation of Zoom: http://www.stern.nyu.edu/~adamodar/pc/blog/ZoomMarch2020.xlsx
If you have no time to check a spreadsheet out, try this picture that summarizes my Zoom valuation:
I think I have told a pretty optimistic story, especially on the revenue front. The entire online meeting market is only $6 billion this year, but was expected to grow to $20 billion by 2025 and I am assuming that the Corona virus scare will accelerate this shift. An investment in Zoom is as much a bet on how much of a shift there will be, as it is on Zoom dominating that market.

Once you have tried your hand at valuing Zoom, please input what you find in the shared Google spreadsheet:
https://docs.google.com/spreadsheets/d/1Gy7RIw37DdxP5wQikRLv1YO8nUbPNFfWEHL_CpGeswY/edit?usp=sharing
3/12/20
In yesterday’s session, which was our first online class,  I argued that you need to start with a  business story, check to make sure it is possible, plausible and probable, convert the story into valuation inputs and let the valuation play out. If you are interested in this part of valuation or think you may have to work on your left or right brain, I have a book on stories and numbers (Narrative & Numbers, Columbia University Press) that you might like. I will see you online on March 23. If you were unable to watch the Zoom session, I made a YouTube version (somehow, the Zoom did not record) and you can see it here:
https://youtu.be/8LCWV2MGyyg
You can also find the slides and the post class test and solution at the usual spot:
http://www.stern.nyu.edu/~adamodar/New_Home_Page/webcasteqUGspr20.htm
I also know that some of you, who are exchange students, have been advised to go home for the rest of the semester and I think that is good advice. It is good to be around friends and family, when you are in a crisis (especially a health one). If you decide to go home, don’t worry. You can still track the class from home (and for all we know, everyone in the class may hav to do this anyway) and I will find a way to give your quizzes and a final exam that you can take at home. The project may be tricky, since it will require working (at least minimally) with a group, but you can still meet virtually.

Speaking of the project, I know that I have been nagging you about getting the intrinsic value portion of your project done soon, to allow for the feedback on March 29. You are welcome to use my data, spreadsheets and valuation tools webcasts along the way. If you are planning to get caught up during the break, I have added atools webcasts to help you on your way. This webcast looks at how to value employee options and bring them into your equity value.
Incidentally, if you find yourself lost among the host of spreadsheets on my site, go with the ones that have a ginzu in the name. They are the most comprehensive, and in an Orwellian this, the simple version of each of the spreadsheets usually is the one that works across most companies. 
For non-financial service companies: http://www.stern.nyu.edu/~adamodar/pc/fcffsimpleginzu2020.xlsx
For financial service companies; http://www.stern.nyu.edu/~adamodar/divginzu2020.xlsx

Most of all, just remember to stay safe and be good, and you will not hear from me until a week from Saturday.

Attachments: Post class test and solution

3/11-3-18 Spring Break. No emails.
3/18/20
It’s only been a week, but it does seem a lifetime ago, since I talked to you last, and I hope that you and your loved ones are safe and in good health. Now that the class has been moved entirely online, I decided that it would be good to make sure that we had the logistics lined up, given that my end game is that you receive the same experience (or as close to it) as we can get, as you would have at Stern. Here is what I thought made the most sense, and I am willing to listen to suggestions:
  1. Location and time differences: I know that you are scattered around the world, and I would like you to start by going to the link below and telling me where you are, what your time zone (- or +, relative to New York) and the name of the company that you have picked for your project. (Yes. I am still nagging you about that): https://docs.google.com/spreadsheets/d/1dzjBw1oddHy1kfM_mEBng6hlUq4nC064kqTus2bvpk4/edit?usp=sharing
  2. Classes: We will meet on Zoom for our regular classes every Monday and Wednesday, from 3.30 pm-4.45 pm, NY time. The Zoom links are under NYU classes and Zoom is an easy platform to learn to work with. I would really, really like you to be online live for the classes. I know that some of you are in time zones, where being in class will be difficult, and a few of you might have broadband issues. I will record the Zoom session on my computer and create YouTube videos and downloadable audio files, if you miss a class. The advantage of the YouTube videos is that they adjust to your bandwidth, and you can even watch them on a smartphone, with cell service.
  3. Office hours: I will hold an hour of office hours, on Zoom, where I will be at least on Zoom every Thursday from 12 pm - 1 pm, NY time, if you have questions.  If you have questions that you think can be resolved by email, please reach out to me. I will set aside an hour each day to answer emails. So, it is not an imposition.
  4. Quizzes and Final exam: The quizzes will be on the scheduled dates (March 30 and April 20), and they will be taken online. They will still be open book, open notes, but you can use your laptop as well, and the only change that I will make (and I do it with a heavy heart) is that it will be multiple choice. The quiz will be accessible for 6 hours that day (to allow for different time zones) and will take one hour to do (once started). If you are qualified to get extra time, please let me know and I will set the time differently for you. The final exam will be on May 15 and will be available for 24 hours (NY time) and take 2 hours to do. 
  5. Project: The project is going to require some lifting and I will help you as best as I can. I would prefer that you stay a group for the project and interact, but I would like you to work on your discounted cash flow valuation of your company. I updated the equity risk premiums and default spreads in my valuation spreadsheets to reflect the changed world we are in. I will obviously be available for questions on your company, which may be going through convulsions as you do your analysis. The final project report is still due on May 11, before the Zoom class that day.
  6. TA review sessions: Sam Mackey and Courtney Go, the TAs for this class, will continue to have their scheduled office hours and review sessions, but they will be on Zoom.
I know that these are unsettling, scary times, but we will get through them, and perhaps even come out stronger, smarter and kinder on the other side. I have been posting weekly about how this is playing out in markets, and you can all find the first three below:
There will another one coming on 3/20.
3/21/20
I know that these are dark times, but I fall back on my favorite biblical expression. This too shall pass! That said, I am going to return to the same routine we would have had in a regular year. So, with no further ado, here we go.
1. Class: If you have completely lost track of where we are in the class, I would start with the newsletter, where I mention where we are on the class and where we are going. There will be class on Monday at 3.30 pm, NY time, online. The zoom links are available under NYU classes, but just in case, you need a quick link, here it is:  https://nyu.zoom.us/j/794714960

2. Quiz 2: Your next quiz will be a week from Monday. While I will send you details about how to take the quiz online, and how it will be structured, you can (if you want) start working on past quiz 2s, keeping in mind that while the questions will look similar, the online quiz will be a multiple choice quiz, not an open ended one. I have attached links to past quizzes, quiz solutions and to a review webcast for the quiz:

3. The Project: As you know (or should know), your DCF is due on April 3 (roughly two weeks from now) for review. It is true that there is no grade attached to it but it you chance to get some feedback on the session. To advance you on the valuation, I have a tools webcast on dealing with equity options in a company,. Let’s face it. Employee options that your company has granted and continues to grant may be a source of imperfection. I know that we went through the mechanics in class. First, value the outstanding options, using an option pricing model. Second, subtract the value of the options from the equity value that you estimated in a DCF. Third, divide the remaining value by the number of shares outstanding (the actual number, not the diluted number). The mechanics of doing this can be tricky and that is why last week's weekly challenge was built around options. After you have tried the challenge, 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:
I hope you get a chance to watch the webcast and that you find it useful. 

4. Lecture Note packet 2: Finally, we will  be approaching the end of the first lecture note packet for the class in about 3-4 sessions. When you get a chance, please print off or download or buy the second packet:
If you have trouble with this file (It is immense and you may have trouble converting it to readable format on your computer), try the pdf version. It is more foolproof.

5. Google shared spreadsheet: I sent you a link to a Google shared spreadsheet, asking for location, time difference and the company that you are valuing. If you have entered that information already, thank you! If not, please try to do it soon (like today).
3/22/20
I hope that you are safe and doing well. As we return from the spring break, we will be returning online and tomorrow’s class will be on Zoom from 3.30-4.45 pm, New York time.  
https://nyu.zoom.us/j/794714960
I know that this may be tough for some of you, given the time difference, but please attend if you can.If you cannot, the recordings will be on Zoom and I will also make a YouTube video for low bandwidth devices and settings.Those recordings and additional material will be on the webcast page for the class:
http://www.stern.nyu.edu/~adamodar/New_Home_Page/webcasteqUGspr20.htm
In tomorrow’s class, we will start on valuing companies, starting with a  valuation of the index as of January 1, 2020, and a discussion of what’s changed since, and then moving on to more difficult and messy cases. In the meantime, I am working on updating my equity risk premiums, since the last few weeks have upended them. More details to come soon! 
3/24/20
I hope that you are well and that you had a chance to review yesterd’s session, in case you were unable to attend. Unfortunately, the only place to find the recording is on NYU classes, under Zoom (look at past classes). My computer recording which I use to create the YouTube and audio files failed yesterday. I am sorry. In this week’s valuation of the week, I look back at a valuation I did last year, when Brexit was still up in the air in the UK and people were unsure about how it would play our, with as many as seven different options on Brexit, ranging from a No-deal Brexit to no Brexit at all. I tookeasyJet, a UK company that is particularly exposed to Brexit, because it gets so much of its revenues from the EU, which has stringent rules on who can or cannot fly between EU countries, and tried to value it under different scenarios. You can read my valuation thesis here:
If nothing else, you will see how scenarios can be used to deal with uncertainty. The valuations themselves are at the links below:
  1. No Deal Brexit: http://www.stern.nyu.edu/~adamodar/pc/blog/easyJetNoDeal.xlsx
  2. Messy/Delayed Deal Brexit: http://www.stern.nyu.edu/~adamodar/pc/blog/easyJetMessyDeal.xlsx
  3. Smooth or No Brexit: http://www.stern.nyu.edu/~adamodar/pc/blog/easyJetSmoothDeal.xlsx
Brexit may now be settled, and you may not care about easyJet, but review the write up and valuation anyway, since this approach may help you in valuing your company, especially if you feel that the Corona crisis may have the same type of discrete consequences for your firm.
3/25/20
In today’s class, we started on the dark side of valuation, where we value difficult-to-value companies. We started the valuaton of young, growth companies by emphasizing that you will be wrong 100% of the time and that it was okay, because the market is usually even more wrong. I argued that to to value a young company, you have to visualize what you see as success for it and work backwards to get the numbers by year, and adjust this valuation for the likelihood that the company will not make it. We then moved on to companies in transition and how you can arrive at two values for these companies: a status quo value and a changed-management value and how you have to take an expected value. 

One final note. Your second quiz is on Monday, March 30, and it will be online and multiple choice. You will be able to find the quiz by going to NYU classes and once you have found this class, by checking the menu items on the left. You should see tests and quizzes and if you click on that, you should see quiz 2 but only on Monday. My suggestion is that you check it out sometime in the next few days, so that you are not desperately looking on Monday. The quiz can be taken any time from 6 am, NY time, to 3 pm, NY time. Once you open the quiz, you have an hour to complete the five multiple choice questions. So, please don’t open the quiz until you are ready to take it. And you have to complete the quiz by 3 pm. So, start by or before 2 pm. The quiz is open book, open notes, open iPads and open computers.  I have put the review session for quiz 2 up online (on the webcast page for the class) with the presentation. The links are below:
Presentation: http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/valquiz2review.pdf
Webcast: http://www.stern.nyu.edu/~adamodar/podcasts/Webcasts/valquiz2review.mp4
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 will be having Zoom office hours tomorrow, from 2 pm - 3 pm, NY time, if you have any questions.  Finally, this may be piling on, but I also have a weekly challenge on management options, which you can consider to be review for the quiz as well.
http://www.stern.nyu.edu/~adamodar/New_Home_Page/wkch/wkch5.htm

Attachments: Post class test and solution

3/26/20
First, a reminder that my first Zoom office hours will be at 2 pm, NY time (in about 15 minutes) and I will stay on for an hour, if you have any questions. I will have to check out at about 2.58 pm, NY time, since I have office hours for another class at 3 pm. I know that your project DCFs are not due until a week from tomorrow and you may be preparing for your quiz on Monday (March 30), 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. Please remember to put “My Perfect DCF” in the subject and list your value and the current price in your email.
  3. 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/fcffsimpleginzuCorona.xlsxIt has updated equity risk premiums, as of yesterday, for both the US and other countries, and it gives you a way of inputting the effect of the virus on this year’s earnings and revenues. 
  4. Each of your valuations tells a story. Try to make it explicit and built it into your spreadsheet. In a prior email, I said that I was attaching an example of what I meant from my Snap valuation and I never did. It can be found in my post at the time of the Snap IPO:  http://aswathdamodaran.blogspot.com/2017/02/a-snap-story-valuing-snap-ahead-of-its.html 
Don’t put too much pressure on yourself. This is only for feedback. 
3/27/20
 hope that you are well. I know that you are probably preparing for the quiz and I won’t disturb you. If you feel overwhelmed, set this email to the side and come back to it on Monday,  but I wanted to clarify a couple of points on which there seems to be confusion about your project valuation.. There are three choices that you can use in doing your valuation.
1. You do not have to use the spreadsheet that I sent you. You can build your own, but if you do, don’t make it so complicated that it is impossible to tell where numbers from. And no, you cannot use or adapt for use the investment banking spreadsheet from your last summer or job. I can almost guarantee you that it will violate at least three and probably more simple consistency rules, and it will trigger me. If you do build a spreadsheet.
2. You can use the spreadsheet that I sent you yesterday, with added features to capture the effect of the virus on risk premiums and earnings/revenues this year. In fact, this week’s valuation of the week takes you on a tour of that spreadsheet, using Boeing’s numbers to illustrate. You can find the YouTube link and the spreadsheet link below:
3. You can take my spreadsheet and adapt it, but if you do, please do not hard code numbers directly into the valuation. That will make it more difficult for me to decipher what is going on, and for you to change your mind, as you will later this semester. Instead, create extra rows or cells in the input sheet, and add your changes in there. (I give you an example during the video guide).
3/28/20
I hope you are safe and healthy this weekend, as as your loved ones. I know that you are working on preparing for the quiz, and have no time for small stuff, but I am attaching the newsletter for this week. If you get a chance, take a quick look. It does not contain earth shattering news or purple prose, but…. Two different notes:
1. I know that you are working on your DCFs, as evidenced by the emails that I have been receiving, and I am grateful. A few of you have already turned in your DCFs and I think I have returned those already. If you have not got it back, you may have missed putting “My Perfect DCF” in the subject. Try again.
2. We will be done with packet 1 soon. Please download the second and third packets of the notes when you get a chance. They are available at the top of the webcast page:

http://www.stern.nyu.edu/~adamodar/New_Home_Page/webcasteqUGspr20.htm

Attachments: Issue 8 (March 28)

3/29/20
For those of you who dropped in on my office hours today, I hope that you found it useful, and I did record it, if you want to watch a Zoom session with extended periods of quiet (when there were no questions). Tomorrow’s quiz should be available online from 6 am, NY time, to 3 pm, NY time, on NYU classes under tests and quizzes. You will take the quiz online (you have an hour to take it, unless you have permission for extra time, and I used the Moses Center list to add that time) and submit it online. It is five stand alone questions, with multiple choices, with no partial credit. It is open book, open notes and open laptops, but please stick to the honor code. I trust you to do so. I also understand that some of you are on the move (not necessarily because you want to, but because you have to). There is no simple mechanism for me to delay your quizzes. So, I will move the 10% to the third quiz and final, if you miss this quiz.

Once you are done with the quiz tomorrow,I hope that you have a chance to watch my Friday valuation tools webcast, especially if you are working on your DCF and struggling with what to do about the viral effects on the economy and your company. A few of the DCFs have been rolling in, and I have sent those back. I also know that some of you are struggling with personal and logistical challenges. So, please view the April 3 deadline for the DCF feedback as just a loose one, and if you feel you need more time, take the time and send me the DCF whenever you are done. I am not planning on gong anywhere.

This week, we will continue to roll through valuations, mostly on the dark side, finishing our discussion of emerging market companies tomorrow (tomorrow’s class will be only 45 minutes to reflect what I would have normally done on a quiz day, and I am a great believer in sticking with structure) and looking across different sectors (financial, commodity etc.) on Wednesday. I hope you get a chance to join in the Zoom live sessions, but if you do not or cannot, the recordings should still be accessible. Let me know if there is anything I can do to make your online lives easier and more productive! 
3/30/20
I am glad that the second quiz went smoothly for most of you. I have also changed the feedback time frame for you to get the feedback on the quiz right now. So, check out your grade and what you might have got wrong. Again, if you made a silly mistake and it cost you a couple of points, I am sorry, but the nature of these online quizzes is that there is no room for partial credit.

 If you had trouble, I am really sorry, but most of the troubles were out of my control. In the shortened session today, we looked at valuing emerging market companies and the challenges that you face, many of which are not unique to these companies. The first is country risk and the need for scalpels, not bludgeons, in incorporating this risk into value. The second is corporate governance, and whether to discount values of companies with weak corporate governance. The third is cross holdings, a particular problem with older, family controlled emerging market companies. Finally, we talked about truncation risk (from nationalization, terrorism and acts of God) and argued for using a post-DCF adjustment to value. You can find the Aramco valuations at the posts below. 
  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
I hope that you get a chance to read it. In the meantime, keep those DCFs coming for feedback. 
3/31/20
 I was supposed to go to Tampa during spring break, with my sons (all three) and grandson (only one) for Yankee spring training, and those plans came to naught. I know that this is a time of fear and worry, and I wanted to ease up this week, with a valuation that may fill a void for sports fans, who have been watching reruns of great games from the past these last few weeks, instead of the NCAA tournament or spring training baseball.  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:
The data is a little outdated and you are welcome to update them, if you want. 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.
4/1/20

In today’s class we completed our excursion on the dark side, by finishing the discussion of emerging market companies and then moving on to financial service companies, contrasting the dividend discount model that we used in the days of innocence with a more complete FCFE model. We also looked at companies that derive the bulk of their value from intangible assets and why the accounting makes them more difficult to value and commodity companies, where being commodify-price neutral is critical and how simulations can help. We closed the class by starting to draw on the contrast between value and price, as a prelude to the pivot to pricing. Check out the post class test and solution, if you get a chance. 

Attachments: Post class test and solution

4/2/20
I am piling on now, and I am sorry. However, the clock is running and we do have stuff to get done. Two quick notes. First, next week, we will be starting on pricing and using multiples. 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 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:
http://aswathdamodaran.blogspot.com/2013/06/a-tangled-web-of-values-enterprise.html
Then watch the webcast:
http://www.stern.nyu.edu/~adamodar/podcasts/Webcasts/multiplecalc.mp4
You can download the presentation:
http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/webcasts/multiplecalc/multiplecalc.pdf 
And the spreadsheet that goes through the calculations:
http://www.stern.nyu.edu/~adamodar/pc/multiplecalculator.xls
Second, I know that some of you are waiting for your DCFs to be returned to you and I am truly sorry that it is taking me so long. I have a few things on my to do list that need to get done first, but I promise that I will try to get them back by the end of this weekend.  If you have not submitted your DCFs, you still have time.
4/3/20 I am watching the emails roll in at the rate of about 50 an hour, and I promise I will get to the DCFs as soon as I can. I am looking after my 2-year old grandson and he is keeping me busy. However, I am noticing that quite a few of your submissions are coming in with subjects other than “My Perfect DCF”. If you are submitting, please do include that in your subject and if you are already have submitted, please resubmit with that subject. I am not nit picking, but I have a smart mailbox created with that subject as the indicator, and It would make my life easier, if all your submissions were in that mailbox. I am sorry for the inconvenience.
4/4/20

I hope that you have a peaceful weekend planned (fun seems to be quite a reach with the virus lurking). In case you get bored, I have a newsletter for you to read.

Attachments: Issue 9 (April 4)

4/5/20
Just a quick reminder to download or print off the first 25-30 pages at least for class:
http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/valpacket2spr20,pdf
To get your pricing cap on, I would suggest reading this blog post of mine:
http://aswathdamodaran.blogspot.com/2013/10/twitter-ipo-why-good-trade-be-bad.html
I wrote in the aftermath of the Twitter IPO, but it could very have very well been written about Lyft. Hope you enjoy it. I am sorry about the delay in getting back your DCFs, but I was on grandpa duty the last three days looking after my 2-year old. Absolutely exhausted.
4/6/20

In today’s session, we took our first steps on pricing a company, by first contrasting it with value and then looking at its appeal to analysts and investors. We then set up a four step process for breaking down multiples, starting with the definitional tests, where we looked at whether the multiple was consistently defined and uniformly estimated. We followed up by playing Moneyball by looking at the distributions of multiples as a replacement for crude rules of thumb. In the third step, we looked at analyzing multiples, using discounted cash flow models and algebra to extract the variables embedded in each multiple. We will continue with this discussion in the next class. 

Attachments: Post class test and solution

4/7/20
I know that you are done with valuation for the moment, but the beat goes on. In this week’s valuation of the week, I turn to Levi Strauss, which went public at about a year ago. You can start with the prospectus:
http://d18rn0p25nwr6d.cloudfront.net/CIK-0000094845/c79ac6b5-b99f-4864-aae7-6e52b62595b2.pdf
You can read my thoughts about the Levi Strauss IPO here:
http://people.stern.nyu.edu/adamodar/New_Home_Page/Valuationofweek/LeviStraussIPO.html
And download the valuation of Levi Strauss IPO here:
http://www.stern.nyu.edu/~adamodar/pc/blog/LeviStraussIPO.xlsx
Its been an eventful year, and Levi Strauss now trades at about $11-$12/share. If you are up for it, download the most recent annual report here:
https://s23.q4cdn.com/172692177/files/doc_financials/2019/ar/873914_007_BMK_WEB_V2-(1).pdf 
And update the valuation.  As someone who wears Levis 501s half the days of the year, I wear my biases openly.
4/8/20
Now that we are fully into the pricing game, let’s keep going. We continued our discussion of PE ratios by looking at the distributional characteristics of PE ratios as well as the drivers of PE, arguing that its determinants are growth, risk and payout/ROE.  Each multiple, we argued, has a driver and companion variable. We then moved on to application and how best to find comparable firms and control for differences. At this point, you have the tools you need to price just about any stock (or asset). Remember that you are paying to heed to the market, controlling for differences as much as you can and hoping that pricing divergences disappear over time. A cheap stock is one with a low PE, high growth, low risk and a high ROE and that becomes the foundation for screening for cheap stocks. If you want to read up more on screening, try this blog post:
http://aswathdamodaran.blogspot.com/2012/06/passive-value-investing-screening-for.html 
I am also attaching the weekly challenge for this week (on pricing). 

Attachments: Post class test and solution

4/9/20
If you get a chance, please read my latest viral update post:
In addition to breaking down the market action by market, and within equity, by region, sector and other classifications, I updated the price of risk. Put simply, I computed the equity risk premium every day from February 14, 2020 to April 3, 2020. On April 1, 2020, the ERP for the S&P 500 stood at 6.01% (adjusted for lower earnings/cash flows). I used this update to also revisit my equity risk premiums by country and the updated ERPs by country are at the link below:
I know that many of you are still waiting for your DCFs and I am truly sorry for not returning them. I do have a really good reason. My son and daughter-in-law were expecting a baby on May 4, but Lily Marie Damodaran decided to come four weeks early (she is only just arrived in this picture). She is doing well, as is her mom, but my wife and I are looking after our two-year old grandson (Noah) and he is hell on wheels. I just put him to bed and I am far more exhausted than after teaching ten hours. We have him for the next four days, as my wife and granddaughter are in the hospital (a little scary in the midst of a pandemic). I will keep you posted.
4/10/20 A couple of notes. First, 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:
http://www.stern.nyu.edu/~adamodar/podcasts/Webcasts/multipleanalysis.mp4
Download the slides:
http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/webcasts/multipleanalysis/multipleanalysis.pdf
Here is the raw data:
http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/webcasts/multipleanalysis/banks2013rawdata.xlsx
And the descriptive statistics:
http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/webcasts/multipleanalysis/bankdescriptives.xls

Second, I am wrestling with how best to deal with teaching just for this coming week, since I have to look after Noah, and he is not amenable to settling quietly while I talk. It will add to the entertainment value of the sessions, but will be a huge distraction.  I may have to use recorded sessions from last year, and if I do, I will set up extra office hours next week, so that you can ask questions. I will also move the third quiz from April 20 to April 27, so that you get more time to ask me questions. I am really sorry to make these last moment adjustments to the schedule. 
4/11/20

I am sure that you are keeping busy this weekend, and I am too. I am attaching the latest newsletter and giving you a heads up that next week’s classes will not be live but recorded classes from last year (you will see Paulson and students, but just focus on the video (slides) and audio. I will send you more details.

Attachment: Issue 10 (April 11)

4/12/20
As I mentioned on Friday, I am sorry but I will have a tough time doing live classes this week. Instead, I have the recorded class I delivered last year for this session (the slides are almost equivalent… If there are differences, it is because they have been updated to this year’s numbers)
http://www.stern.nyu.edu/~adamodar/New_Home_Page/webcasteqUGspr20.htm
The session covers the fundamentals of pricing, and I don’t think it is too painful too watch. Since there will be no live Zoom session tomorrow from 3.30 pm - 4.45 pm, NY time, please watch the recorded session in whatever format you want (YouTube, Zoom recording or audio). I will follow up on the session tomorrow
4/13/20
I am sorry I could not be live with you but I hope that you had a chance to watch the recorded class from last year. The links are at the website, but I have also listed them below:
NYU Server: https://nyustern.mediasite.com/Mediasite/Play/cd38c4a370dc4e4d89ca8422d2d1c9451d
YouTube: https://youtu.be/dKJibZyK9oE
During the class, we closed the book on relative valuation by  looking at 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
We then moved on to 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:
I have also moved the third quiz to a week later (on April 27) to allow for an extra week of preparation and live questioning, since I will be largely offline this week. 

Attachments: Post class test and solution

4/14/20
I am sorry again for teaching in absentia this week, but I will be back  next week, live and eager to go. I hope you had a chance to watch yesterday’s recorded session, and tomorrow’s session will also be a recorded session that you can watch online at the regular class time (3.30 pm - 4.45 pm, NY time). I will have an added office hour from 5 pm - 6 pm, NY time, tomorrow, if you have any questions, since I will be occupied during the regularly scheduled office hour. The meeting link for tomorrow’s office hour is:

I know that most of you have given up on the valuations of the week, but about a year ago, Kraft Heinz reported earnings with a trifecta of bad news, languishing operating numbers (flat revenues & declining margins), an accounting irregularity (with an SEC subpoena) and a massive impairment of goodwill, sending the stock price down by more than 25%. 
https://www.marketwatch.com/story/kraft-heinz-loses-a-lot-of-cheese-as-earnings-send-stock-plunging-toward-record-low-2019-02-21
While companies reporting bad numbers is not uncommon, what makde Kraft Heinz special is the pedigree of its lead investors, with Berkshire Hathaway owning 26% and 3G Capital (a Brazilian private equity group with an unmatched reputation for financial acumen and ruthless cost cutting. Investors who followed Buffett into the stock were not only shocked but claimed to be betrayed, that the oracle would mislead them. I wrote a post on why this unquestioning faith in Investment Gods is dangerous and delusional, and posted my valuation of Kraft Heinz. 
Blog post: http://aswathdamodaran.blogspot.com/2019/02/the-perils-of-investing-idol-worship.html
Valuation: http://www.stern.nyu.edu/~adamodar/pc/blog/KraftHeinz2019.xlsx
The financial information, including the most updated earnings report, can be found at this link:
http://ir.kraftheinzcompany.com/news-releases/news-release-details/kraft-heinz-reports-fourth-quarter-and-full-year-2018-results
I found the company close to correctly valued, with a value of $34.88, almost equal to the stock price of $34.23. The stock is currently trading at $28.45 and you can update the valuation, if you are so inclined.
4/15/20

I apologize again for the recorded sessions for this week, but I will be back live next week. If you have watched today’s session, we looked at valuing private companies, starting by listing the key differences between public and private companies in information available. We then talked about why motive matters in private company valuation, and why the value attached to a private business can be very different for a private (undiversified) buyer, as opposed to a diversified investor. We also talked about adjusting cash flows for owner salaries and key person discounts. Finally, we examine the consequences of illiquidity for pricing/valuing private businesses, and looked at approaches to estimating an illiquidity discount.  The third quiz has been rescheduled for April 27, in case you had not heard.  Finally, I am attaching the post class test and solution for today, as well as two short weekly challenges for the week. 

Attachments: Post class test and solution

4/16/20 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, and most of you hopefully have (and I will get them back to you, if you have sent them to me for feedback soon), it is time to price your company. 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. To give you a sense of pricing, I I suggest that you read this excerpt that I found in a guide for appraisers trying to value a hotel on how to do it.
Another valuation rule-of-thumb used in the lodging industry is that each room of a hotel is worth 100,000 times the price of a Coke™ in the on-floor vending machine or in-room mini-bar. More formally:
Value = Coke™ price x Number of Rooms x 100,000
The Edgemore Hotel sells cans of soda for $1.50 in the room mini-bars. Thus, the value of the Edgemore by this “precise" valuation method is:
$1.50 x 300 x 100,000 = $37,500,000
We urge market participants to use this technique judiciously, as some properties seriously "misprice" soda in relation to property. (Really?)
No. This is not a parody but a real technique. If you don’t believe me, read the whole thing:
You may find it laughably simplistic, but in pricing, if it works, don’t fight it.
4/17/20
I decided to skip the valuation tools webcast for this week and thought I would send you the material to review for the quiz, even though it has been postponed to April 27. To review for the quiz, you can use the following resources:
4/18/20
Just a reminder that we will be starting on packet 3 next week. Please download the packet on the webpage for the class:
http://www.stern.nyu.edu/~adamodar/pdfiles/blog/webcasteqUGspr20.htm
I also have the newsletter attached for this week and I am looking forward to seeing you live again on Monday.

Attachment: Issue 11 (April 18)

4/19/20
I hope that your weekend is flying by, with one fun activity after another…. Me too.. Once the fun is over, this week will bring packet 3 into the picture, as we start tomorrow by talking about real options. If you have forgotten all about options, please very quickly review your notes on at least the payoff diagrams for options. Please remember to download packet 3. The direct link to the pdf file is below:
http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/valpacket3spr20.pdf
I will see you live tomorrow in class….
4/20/20
I know that today’s class was a grind and I am sorry, but it is necessary pain, to get to use option pricing in real options valuation. We started the session by looking at what makes options unique, the fact that they derive their value from an underlying asset and have limited losses and how to price options, using replication and arbitrage. We argued that to use option pricing models in real options, you have to first establish that there is an option (with a payoff diagram), then show that you have exclusivity and finally meet the requirements for replication and arbitrage. We used this insight to value a patent as an option, and showed how competition can make the optionality fade at most companies. The third quiz is on April 27 and it will cover packet 2 of your lecture notes. The quiz 3 links, in case you have lost them, are below:
4/21/20
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:
http://www.stern.nyu.edu/~adamodar/New_Home_Page/Valuationofweek/SeverstalPricing.html
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:
http://www.stern.nyu.edu/~adamodar/pc/blog/steel2017.xlsx 
I used this raw data to estimate median values and compared Severstal to those values in this link:
http://www.stern.nyu.edu/~adamodar/pc/blog/steelmultiples.xlsx 
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.
4/22/20
If you were in the Zoom session, it came to an abrupt end, as my broadband connection dropped and I apologize for leaving you hanging. Luckily, we were at the end of the session. During the session, we continued with our discussion of real options by first noting how undeveloped reserves at natural resource companies taken on option characteristics. Thus, even at a $20 oil price, reserves that may cost $45 to extract a barrel of oil from don’t become worthless, since oil prices can and will change. We then looked at the option to expand, and how it involves two projects, one that you take today with a negative NPV with the right to take another in the future, which also has a negative NPV but comes with optionality. This is the feature that allows you to pay a premium for a company with a platform that can be exploited in the future. We also looked at the value of flexibility in terms of being able to walk away from mistakes (option to abandon) and financial flexibility (where you choose to remain under levered). In the last part of the class, I argued that equity in troubled and deeply distressed companies (like airlines) can take on the characteristics of an option, explaining why equity even in basket case companies can continue to have some value. 

It has also been brought to my attention that the document with the past quiz 3s was damaged, and I think I have it fixed now. You can find the material you need for quiz 3 in the following places:
Quiz 3 will be available to take on Monday, April 27, from 6 am to 3 pm, NY time. You will have an hour to finish the exam and it will be multiple choice. I will have office hours tomorrow and day after, and probably one more hour during the weekend, if you have questions. 

Attachments: Post class test and solution

4/23/20
I won’t nag you about the project, though I will double up after the quiz. As you prepare for quiz 3, please keep your focus on packet 2, though remembering your intrinsic value basics can only help. 
  • One recurring question that some of you have had is about my use of (1+g) in some problems and not using it in others. Here is the simple rule. If you are given next year's number (earnings, return on capital, margin 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 margin or return on capital next year is X, you don't need to put the (1+g) in the model. 
  • On private company valuations, please go through when we use total betas to estimate cost of equity and when we don’t (hint: it depends on the buyer of the company and how diversified he or she is). 
  • Some of the past quizzes have questions about voting/non-voting shares and options. Ignore those. They will be on the final exam, but not on this quiz.
  • Quiz review: To review for the quiz, you can use the following resources:
  • I know that the quiz pdf file had some issues with it and I think those issues are fixed now. 
4/24/20
If you feel like exploring valuing a patent as an option, I have a webcast on how to do it and 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
I have also added a weekly challenge related to options that you can try out. It is attached. 

As for the quiz, it will be available from 6 am - 4 pm, NY time on Monday (April 27). Since the quiz takes an hour, you will need to start at 3 pm. There will be class from 4 pm - 4.50 pm, NY time.  

Attachment: Weekly Challenge

4/25/20
The newsletter for the week is attached. As the clock winds down, deadlines are approaching. The third quiz will be on Monday (April 27). It will cover packet 2 (pricing, private company valuation and asset based valuation). So, keep that in mind as you review past quizzes. You can find them here:
Past quizzes: http://www.stern.nyu.edu/~adamodar/pdfiles/eqexams/quiz3.pdf 
Past quiz solutions: http://www.stern.nyu.edu/~adamodar/pdfiles/eqexams/quiz3sol.xlsx  
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. The review session for the quiz is at the links below:
The quiz will be accessible from 6 am to 3 pm, NY time, and will take an hour. So, please get started by at least 2 pm

Attachment: Issue 12 (April 25)

4/26/20
I will keep this short. I hope that your preparation for the quiz is going well. In case, you have last minute questions or just clarifications, I will have be around later today on Zoom. (Where else? It’s become my alternate universe…) The details are below:
Aswath Damodaran is inviting you to a scheduled Zoom meeting.

Topic: Office hours for valuation and corporate finance
Time: Apr 26, 2020 05:00 PM Eastern Time (US and Canada)
4/27/20
By now, many of you (about 260, by my count, out of a class close to 300) should have received back your DCF valuation back. If you have not received yours back, please send it to me again. Rather than make myself into an all-knowing oracle (which I am not), t thought I would take you through the process I used to diagnose your DCF valuations. 

Narrative checks
In class, I have made a fetish about connecting stories to numbers and I am going to stick with that fetish. As I looked at your valuations, I always stopped and asked what the underlying story you were telling about your company. You did a really good job, collectively, and I would classify the submissions into three groups:
1. Story-driven valuations: Many of you sent in valuations that not only had a story but tied inputs to that story and you are well on your way to understanding valuation as a craft.
2. Stories that don’t quite hang together: Some of you told stories that were at war with themselves (with different parts pulling in different directions) because you told individualized stories for each input.
3. Valuations with implicit stories:  While some of you may have no specific story in mind, your numbers told a story that you may or may not agree with. Thus, if you were valuing Amazon and your revenues in year 10 are 500 billion and your operating margin is 4%, the story that you are telling about Amazon is that it is going to continue to go for more revenue growth, sacrificing margins and that it will pulverize the rest of the retail business. In some of your valuations, the story seems at war with itself. Thus, if you have your company’s revenues tripling in a mature market and your margins also going to well above industry averages, your story is quickly becoming implausible. I would strongly encourage you to take a look at your valuation (look at your year 10 numbers specifically) and think about the story that you are telling. Otherwise, it is just a spreadsheet with a bunch of numbers.
One thing that I would recommend that you do, especially if you are using my spreadsheet, is to use the story worksheet that is built into the spreadsheet and enter the story for your company. (Many of you did, but some of you have left my Boeing or Zoom story in there…)

Input page checks
Step 1: Currency check: What currency is this company being valued in and is the riskfree rate consistent with that currency? 
Right now, if you are valuing a company in US dollars, I would expect to see a riskfree rate of about 0.75 or 0.8% here.. though some of you used 30-year bonds rates which would give you a slightly higher value). if you are valuing your company in pesos or rubles, I would expect to see a higher riskfree rate, (Watch out for the tricky ones.. a Mexican company being valued in US dollars or a Russian company in Euros.. Your riskfree rates should revert back to the Euro riskfree rate, if this is the case)
Step 2: ERP check: Is the equity risk premium being used consistent with where the market is right now and where this company has its operations
If you are analyzing a company with operations only in developed markets, I would expect to see a number of about 5-6% here... That is because the current implied premium in the US is about 6.01% (April 2020). If you are using a premium of 4%, you will over value your company. If your company is exposed to emerging market risk, I would expect to see something added to the mature market premium. While I begin with the presumption that where your company is incorporated is a significant factor in this decision, it should not be the only one in this decision. Coca Cola and Nestle should have some emerging market risk built into them.
Step 3: Units check: Are the inputs in consistent units?
Scan the input page. All inputs should be in the same units - thousands, millions, billions whatever... What you are looking are units with far too many digits to make sense. (Check the number of shares. It is the input that is most often at variance with the rest, usually because you use a different source for it than the financial statements)
Step 4: Operating lease inputs
If you capitalize operating leases, make sure that you get the current year’s lease or rental expense in addition to the lease commitments. If you cannot find the former, enter a number equal to your first year’s lease commitment.
As a follow up, check the reinvestment rate for the firm. If it a weird number (900%, -100% etc.), it may be because something strange happened in the base year (a huge acquisition, a dramatic drop in working capital). A better choice may be to average over time.

A Plea
I know that you have lots to do and I am adding one more item to your to-do-list, but I have taken the Google shared spreadsheet that I created when we moved to the online format, and added five extra columns to it (DCF value, Multiple used, Your pricing per share,Current Market Price/share and recommendation). If you are valuing a private company, enter a price equal to your estimated value.  Please, please enter the numbers for your company in these columns, when you get a chance. 

Attachments: Post class test and solution

4/27/20

If you were on the Zoom session today, thank you for joining me, especially since you had to do the quiz today. In this session, we tried to put into practice the notion of valuing equity in deeply troubled, highly levered company as options. I used the example of Eurotunnel to show that equity in a company with operating assets that are below the debt outstanding today can still be worth money, if viewed as options. I also introduced a spreadsheet where you can try this out on your company, but only if it meets the requirements of being troubled and highly levered. (To provide some specifics, don’t try this if your company’s debt to capital ratio (not debt to equity) in market value terms is less than 60%. If you are valuing an airline, restaurant or retailer, I would try it anyway.)

Attachments: Distressed equity as an option

4/28/20 There is no valuation or pricing for this week. I think that you have had enough of me. Before I continue nagging you about the project and getting done, I want to deliver on something I promised yesterday. You did your quiz 3 yesterday and you should be able to check the solutions on NYU classes, as well as your grade. Since some of you are concerned about the distribution, I have put up the distribution of both quiz 2 and quiz 3 grades below. Don’t read too much into your standing at the moment, whether it is really good or bad, since 70% of the grade lies on the final and the project.
4/29/20

In today’s class, we will start with our discussion of  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 the class. It is a great way to review the entire class while also getting ready for the class. So, please give it your best shot. 

Attachment: Acquisition tests

4/29/20
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 did a post on the the InBev/SABMiller merger, when it happened:
Here is my YouTube video on the merger.

Attachments: Post class test and solution

4/30/20
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. Since you may be struggling with what to include or not include in your annual report, I have attached an example of what a valuation report for Boeing would look like today. Use it as a general template, but you can be creative and make it your own.

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). 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.
PastedGraphic-1.png

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 (Monday’s class)
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 2019  (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 ($161/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 11, 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.
4/30/20
I know that this has been an unsettling semester for many of you, both in terms of classes and life, and the last thing I want to do is to make your life more difficult. I know that I have been demanding of your time and that I nag you without stop, but I really, really want to make sure that you are able to get as much out of this class online, as you would have in person. That may not be doable, but I will be damned if I stop trying. That said, we are on the cusp of the last part of the class and I decided that it is time to talk about that which will not be mentioned, which is grades. With no further ado, here we go.
  1. Sunk Costs:  We are collectively done with three quizzes and a case, and you should be able to check your score on NYU Classes in the grade book. As you look at your quiz grades, remember that your worst quiz score will be replaced by the average score on the remaining quizzes (already done) and the final (still to come). Thus, if you have 6,8 and 10 on your three quizzes, your worst quiz (6) will get replaced by your average score on the other two quizzes and the final. Since you have not done the final yet, I cannot give you the answer, but if you get 27/30 on the final, your percentage score across the two best quizzes and the final will be 90% ((8+10+27)/50). Your worst quiz will get marked up to a 9/10.
  2. Quiz distributions: I sent out the quiz distributions on an email yesterday. Don’t read too much into these grades. They are only 10% apiece of your overall grade.
  3. Pass option? I know that this semester, you have the option of taking this class pass/fail instead of for a grade. Some of you have emailed me about whether you should take this option and I cannot make that judgment for you. That said, I also am cutting some slack into the grading distribution to allow for the fact that it is more difficult, especially if you are not a finance person, to take this class online and that even if you are not doing well on the quizzes, it may not be reflective of the work you are putting into the class. Consequently, I will look at the final project to make a judgment on your final grade. Put simply, if you turn in a solid effort on the project and I believe that you are getting comfortable with valuation, I will put a floor on your grade. Whether that floor is a C, a B- or a B will rest on how you do on the final exam. You may still prefer a P to that grade, but to get the pass, you still need to do the final project. 
  4. Multiple choice: I have wrestled with the multiple choice versus open ended question in writing the quizzes and exams. I don’t like multiple choice questions, because they don’t allow for nuance or partial credit. To compensate, though, you have more time, you can use your laptop and I have made each question a stand alone question, so that you don’t have carry over mistakes. With all that said, I know that some of you feel that the multiple choice format is putting you at a disadvantage. Talk to me in the next few days, if that is the case. If your concern is more at the margin, that a silly mistake on one question will cost you an A, leave that in my hands and trust me. I will figure out an equitable solution.
5/1/20 This is the last of the valuation tools webcasts. If your company is the one that meets the equity-as-option test (losing money, lots of debt), you are probably not happy. However, it is really not an involved exercise. To assist you, I did put up my latest valuation tools webcast, on valuing distressed equity as an option. I used Jet India, an Indian airline with a history of losses and a mega debt load to illustrate the process. You can start with the webcast below:
http://www.stern.nyu.edu/~adamodar/podcasts/Webcasts/equityoption.mp4
The financials for Jet India are contained in this sheet:
http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/webcasts/DistressedEquity/jetindiaFA.pdf
The DCF valuation that you need to get your option model started is here:
http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/webcasts/DistressedEquity/jetindiaDCF.xls
The value of Jet India's equity as an option is contained in this spreadsheet:
http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/webcasts/DistressedEquity/jetindiaoption.xls
It is pretty straight forward and may be useful.
5/2/20
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:
https://docs.google.com/spreadsheets/d/1dzjBw1oddHy1kfM_mEBng6hlUq4nC064kqTus2bvpk4/edit?usp=sharing
In my Thursday email, I also mentioned using my market regressions, but I just realized that I sent you the link to the January 2019 regressions, not the January 2020. I am sorry, and here is the right link:
http://www.stern.nyu.edu/~adamodar/New_Home_Page/datafile/MReg20.html 
As you look to the final, note that it will be accessible for 12 hours on May 15 and that it is a 2-hour final. More details on reviews, office hours and other specifics will come some time this week. 

Attachment: Issue 13 (May 2)

5/3/20 It is the last full week of class ( with the last session a week from tomorrow) and I am sure your plate is full. We will complete our discussion of acquisitions tomorrow, first talking about how ego drives mergers and then looking at differences across different types of deals. On Wednesday, we will talk about value enhancement, focusing on the levers for changing value. Since you will be wrapping up your project, I will have office hours on Tuesday, Thursday and Friday. I will send you the links tomorrow.
5/4/20
In today’s class, we completed our discussion of acquisition valuation by looking at the emptiness of transaction multiples and the pointlessness of accretion and dilution analysis. We closed the section by looking at the Inbev SAB Miller merger. If you are interested, here is my entire post on the merger:
We then started on value enhancement, by first contrasting with price enhancement, and then looking at the levers that determine value. More on that in the next class. 

As you work on finishing up your projects and getting ready for the final exam, a few notes. First, your final exam is on schedule for May 15 and it will be accessible for about 12 hours that day. It will be two hours long and comprehensive. Second, if you have questions, I will be having Zoom office hours this week on three days. The links are below:
Tuesday, 1 pm - 2 pm (NY time): https://nyu.zoom.us/j/571950569
Thursday 1 pm - 2 pm (NY time): https://nyu.zoom.us/j/290240675
Friday 1 pm - 2 pm (NY time): https://nyu.zoom.us/j/94823227386
If you have any questions about the project or the final, I will be there. (If I am running a couple of minutes later, it is because I have office hours for a different class running in the previous hour. Just hang in there. Until next time!

Attachment: Post class test and solution

5/5/20
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.
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.
3. If the option pricing applies to your company, try it.
3. Make your recommendation and I will accept your judgment.
I know that this is shaping up as the week from hell for some of you and I share some (or all) of the blame. Anyway, it is too late for me to be offering you "substantive" help on the project, at least on a collective basis, but here is a list of "to dos" for you and me over the weekend:
For you:
1. Finish the number crunching for the project. 
2. Enter your numbers into the Google shared spreadsheet:
 
3. Work on writing up the project report. Don't get fixated on format or on small details. 
  1. There is one report, per group, that will contain summary descriptions of your valuation, pricing and recommendation for each of the companies that you covered. On the cover page, please include the names for all of the group members, in alphabetical order (by last name). If you are doing your project individually, please make sure that you let your group know, and you can turn in the project. 
  2. There is absolutely no need for excel files to be added on. 
  3. No matter what format you use for the project (Word or Powerpoint), please convert into a pdf file. There is less chance of bad formatting issues with pdf lies.
  4. Make sure that you include the names of all the group members, in alphabetical order, on the first page of the report.
4. Next Monday morning,  check your email. You should find a presentation  for the class attached to the email.
5. Tune in live to the Zoom class on Monday. I know that some of you are in different time zones and have been watching the recordings, and that is perfectly understandable. However, Monday's class is special. If this were a play, it would be when the fat lady sings. While I may not be fat, a lady or hold a tune, I will do my best impersonation.
6. Turn in your project report by email by 5 pm, as an attachment. Make sure that you cc everyone in your group and In the subject, please list “It’s Over”.

For me:
1. Send nagging emails every few hours asking for your summaries and providing updates.
2. Check your Google shared spreadsheet, and nag again
3. On Sunday night, do assorted magic on the summaries
4. Put into a final presentation (see above) and send to you by Monday morning.
5. Show up in Zoom  class and do the "fat lady song"
6. Wait for your final project reports
7. Start grading…
5/6/20
In today’s class, we completed the last strand of the class by focusing on the mechanics of value enhancement, and how they can help us assess the expected value of control. As a first step, you value your company twice, once with the status quo and once with improved management in place, yielding a value for control, and to make it an expectation, we multiply by the probability of change happening. The first is a function of how well managed a company is, with poorly managed companies offering more potential value to a control change. The second is determined by corporate governance, with stronger corporate governance and more activist investing increasing the probability of change. We then used this framework to assess the value of control in acquisitions, how the market price of a company can reflect the probability of management change, the value of voting rights in voting shares and the extent to which you would discount a minority holding in a private company. Finally, we looked at the magic bullets that consulting firms offer (from increasing growth to increasing a proprietary acronym like EVA and CFROI) and noted that done right, there is that there are no insights you get from these that you could not get from looking at a DCF and that focusing on these variables in compensation systems can lead to skewed results.

On the project, you are on the home stretch and I wish you the best of luck. I have office hours tomorrow (Thursday) and Friday and the links to the Zoom sessions are below:
Thursday 1 pm - 2 pm (NY time): https://nyu.zoom.us/j/290240675
Friday 1 pm - 2 pm (NY time): https://nyu.zoom.us/j/94823227386

Attachments: Post class test and solution

5/7/20
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). (Your project is not due until the following day at 5 pm.) 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:
https://docs.google.com/spreadsheets/d/1dzjBw1oddHy1kfM_mEBng6hlUq4nC064kqTus2bvpk4/edit?usp=sharing

I also sent out links to the final exam review and past finals in yesterday’s emails. If you are getting on a jump on preparing, here are a few suggestions:
1. In reviewing the material, start at the end and work backwards, with packet 3 getting your attention first. While it is a cumulative exam, these are the materials you have not already studied for a quiz.
2. In working through past exams, start with the most recent ones and work backwards, since I have changed the format a little.
3. I sent the wrong link for the slides for the review in yesterday’s email. Here is the right link:
Slides for final exam review: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/valfinalreview.pdf 
I have office hours tomorrow (Friday from 1 pm - 2 pm), in case you have questions. Until next time!
5/8/20
I know that you are busy and I will keep this brief.
1. Please wrap up your pricing. As you work on the pricing, recognize that 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 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. 
3. I will be having office hours today at 1 pm, NY time. I know that office hours are getting crowded, but I have about 800 people in the three classes put together. I know office hours are scheduled to be until 2 pm, but I will stay on today as long as there are people waiting.
5/9/20
It is the final weekend of the class, and I wanted to remind you again to enter the numbers for your company, when you have them, into the Google shared spreadsheet:
https://docs.google.com/spreadsheets/d/1dzjBw1oddHy1kfM_mEBng6hlUq4nC064kqTus2bvpk4/edit?usp=sharing
(Just a request. When entering numbers for the stock price, value and pricing for your stock, please use the currency tool in Google, but if you cannot find it, just enter the number. Please don’t enter EUR 39.33. Just enter 39.33.  It makes it impossible for me to work with your inputs, without fixing them)

In addition, please remember to fill out the course evaluations. The instructions are below. To be honest, I don’t know what the consequences are for forgetting, but why risk it? Just get it done!

Student Instructions for Completing Course Evaluations

To access your evaluation, sign into Albert and scroll down to the Enrolled Courses section. Click the Eval icon for the course you would like to evaluate.

The evaluation will open in a new tab. Please ensure your pop-up blocker is disabled, otherwise you will not be able to access your evaluation. Instructions on how to disable your pop-up blocker can be found here.

5/10/20
The project is approaching its end and here are a few final reminders.
1. Enter numbers into the Google shared spreadsheet: If you have the numbers (DCF value, pricing, current price) for your company, please enter the numbers into the google shared spreadsheet
I know that some of you have used more than  one pricing approach for your stock. Report the pricing that you find most credible (your judgment call).
2. Check your email early tomorrow morning (before class): I wIll use the numbers you send me to summarize what you found (percent of under and over valued stocks, most under and most over valued stocks). I will also add a front section to cover the last pieces of acquisition valuation and value enhancement.  Please download it for tomorrow’s class. 
3. Please try to come to (the live) class: Even if you live in a different time zone and have been watching the recorded version of the class, I would enjoy seeing you in the live class tomorrow. 
4. Submit your project report: When you submit your report, please, please make sure that you enter “The Grand Finale” in the subject, cc all your group members on the email and submit just the report as a pdf file (no attached excel spreadsheets). The report is due by Monday (May 11) at 5 pm, NY time.
Thank you!
5/11/20
Thank you again for all your summaries. I really could not have done this without you, and you will see what I mean when you review the slides for the last class. They are at the link below:
http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/valUGclose2020.pdf 
Please do try to be at the last class. All will be revealed…
5/12/20 I know that you are heaving a sigh of relief after finishing your project but there is no rest for the wicked, since the final exam is on Friday (May 15). Here are the links to review material:
You can also find past final exams and solutions at this link:
5/13/20
There are three questions seems to be coming up on the real options problems and m afraid 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 cashflows 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)?
I will give you the cumulative normal distribution. You still should be able to estimate d1 and d2 on your calculator. While the distribution may not give you a precise N(d), I will accept the nearest number. Thus, if d =0.48, I will take N(.50) as your estimate.
5/21/20
I hope you are done, and are celebrating, social distancing as you do it. However, just in case you still care about grades, yours just went online. I know that this semester was a challenge. None of us signed up for an online class, and I am sure that you are all Zoomed out. And valuing a company in the midst of a full-blown market crisis is never easy. The good news is that if you can value a company in this environment, you can value it any setting. I appreciate your showing up for the online class 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 some 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. While I will not be teaching in the fall, I will be back teaching in the spring, and you can watch another class endure 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 kids tell me that TikTok is the social media platform of the day. Perhaps, I should be Tiktoking soon…. So, have a great summer and an even better rest of whatever life has in store for you!