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Val emails


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

Have fun with them!

Email content
I am sure that you are finding that break is passing by way too fast, but the semester will soon be upon us and I want to welcome you to the Valuation class. One of the best things about teaching this class is that valuation is always timely (and always fun...) Just as examples: Is it time to buy or sell Twitter? Is Uber worth $120 billion? 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): 

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:

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. 

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: FMK-HYW-MCA
Alternatively,  type in or click on the link for the class.
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 three weeks. Until next time!
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:
The post was triggered by the awe I felt, looking up at Brunelleschi’s Duomo in Firenze a few summers ago, but the thoughts are all investing/valuation thoughts.

Another theme is that you should not be shy about challenging conventional wisdom, even when it comes with impeccable logic and backing. In this old post, I take on the notion that CAPE, a market metric that was developed by Robert Shiller (Nobel Prize winner and bubble forecaster extraordinaire), is an indicator of market pricing.
If you find talk of Superman’s cape and kryptonite distracting, ignore it. 

Just a few quick notes leading into class two weeks from now 
1. Please make sure that you got my email from last week. If you joined the class this week or just don't read class related emails during your break, you can find the entire email by going to
2. Visit the website for the class and check out the Google calendar to make sure that you don't have any quiz conflicts: 
3. If you have an Apple device, please download iTunes U (a free app from the app store). 
a. iTunes U: You need an Apple device (iPad or iPhone) and have to download the iTunes U app (free). Then use the enroll code: FMK-HYW-MCA
Alternatively,  type in or click on the link for the class.
b. YouTube Channel: There is a YouTube playlist for this class, where all class sessions will be loaded.
The lectures will show up on this playlist as well.
Finally, I apologize if my previous version of the calendar showed your class starting three hours later. It was my fault, a failure to adjust for time differences when setting up the calendar, but all should be good now:
Lots to think about before class a week from today, on February 4, in Paulson. See you there! Until next time!
We are officially rolling. If you enrolled in the class in the last couple of days, you did miss the first two emails but they are already in the email chronicle, in case you are interested:
Email chronicles: http://www.stern.nyu.edu/~adamodar/New_Home_Page/eqemail.html
This chronicle will be updated at the end of each week to include all emails sent up until then. There were three handouts in class today. If you were unable to get one or more, here are the links:
Syllabus: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/eqsyllspr19.pdf 
Project: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/eqprojspr19.pdf
Introduction to Valuation (Slides for Wednesday’s class): http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/Valintrospr19.pdf 
A quick note about today's class. During the session, I told you that that this was a class about valuation in all of its many forms – different approaches (intrinsic, relative & contingent claim), different forums (for acquisitions, value enhancement, investing) and across different types of businesses (private & public, small and large, developed & emerging market). After spending some time laying out the script for the class (quizzes, exams, weekly tortures), I suggested that you start thinking about forming a group and picking companies. To get the process rolling, here is what I have done
1. Group: Please do find a group to nurture your valuation creativity, and a company to value soon. If you are ostracized, or feel alone, I have created a Google shared spreadsheet (an Orphan list, so to speak) that you use to find others like you in the class:
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:
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.
If you did not get the syllabus, project description and the valuation intro in class this morning, they are all available to print off from this site. I will also be sending out a post class test and solution after each session that should take you no more than 5-10 minutes to do. It is a good way to review the class and I hope that you find it useful. Sorry about the length of this email, but there will be more to come (I promise!). Until next time!

Attachments: Post-class test and solution.

(Sorry. My send finger moved too fast) It is Tuesday, and if you remember my promise (or threat) yesterday, it is time for the valuation of the week. I decided to revisit one of my favorite companies, Apple, and value it. Since it is a company, I have valued before and that my most recent valuation was only in September, the best place to start is with two blog posts that I wrote about my valuation of Apple (with Amazon thrown in for good measure):
Post 1 (from September 2018): http://aswathdamodaran.blogspot.com/2018/09/apple-and-amazon-at-trillion-looking.html 
Post 2 (from September 2018): http://aswathdamodaran.blogspot.com/2018/09/amazon-and-apple-at-trillion-follow-up.html 
I got incredibly lucky in terms of timing, since my value was about $200 and the stock was at $230. The stock dropped as low $145 early this year, right after a China surprise, and it came out with both an annual and a quarterly report after my 2018 valuation:
10 K from November 2018: https://d18rn0p25nwr6d.cloudfront.net/CIK-0000320193/68027c6d-356d-46a4-a524-65d8ec05a1da.pdf
10Q from February 2019: https://d18rn0p25nwr6d.cloudfront.net/CIK-0000320193/8f91c57f-9dbf-48c4-889c-792e2acc05d4.pdf 
I revisited my valuation, with updated inputs not just for Apple but for risk free rates and risk premiums. My valuation of Apple in February 2019 is at this link:

My value for Apple is $183, and the stock is trading at $ 174. I am not trying to sell you on my conclusions. What I would like you to do is to take my valuation (and story) and make it yours, by entering the spreadsheet and changing the numbers. To keep you focused, here are the four numbers that drive the value:
  1. Revenue growth: My assumption is that the China shock notwithstanding, the expected growth rate in revenues will be about 3% a year, with services picking up some of the lag. You might disagree).
  2. Operating margin: Apple’s operating margin is about 28.6%, down from 30% a couple of years ago. I think it will continue to drift down as the smart phone business continues to become more competitive and my target margin is 25%, reached in 5 years. Again, you might disagree.
  3. Sales to Capital: I know that this sounds mysterious but I use it to determine how much Apple will have to reinvest to get its growth. It is not a big deal since I am not assuming much growth. I am using the US industry average for electronics companies of 1.81 to estimate reinvestment. If you think that I am reinvesting too much, raise this number. If you think I am reinvesting too little, lower this number.
  4. Cost of capital My cost of capital for Apple is 9.45% and if you go into the cost of capital worksheet in the valuation, you will see what I am assuming. This is higher than the median cost of capital for a US or global company, and puts them in about the 65% percentile in terms of risk. You are welcome to disagree.
Once you have made your changes and come up with a value, please enter your inputs and resulting value into a Google shared spreadsheet. Please don’t wreak havoc by deleting other peoples’ inputs.
I will keep a running tab of what you are finding. Have fun! Until next time!

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. Since I mentioned Carl Icahn and Bill Ackman as hostile acquirers (catalysts), you may want to look at Herbalife, the company that Ackman has targeted as being over valued and Icahn did for being under valued. See if you can get a list going of how each is trying to be the catalyst for the correction... and think about the dark side of this process. 

Attachments: Post-class test and solution.

Each week, I will use the Thursday email to prod, nag and bug you about the project. So, without further ado, here is where you should be this first week:
  1. Find a group: The groups are yours to create and you should try to have at least 4 people in a group and not more than 8 (that limit is for your own 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 the orphan list for the class: https://docs.google.com/spreadsheets/d/1OLvGqPSG40Nvit3sn6r8Gqdmpfj2AdCizfHzFQAmfr0/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. As MBAs, you should have access to Capital IQ on the Stern Dashboard, but if you don’t, I will work on getting it for you. Until next time!
Just two 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
I had mentioned that S&P Cap IQ was a great resource to use for data, but It turns out that you have to go to self-register to be able to access it. Until next time!


I hope that you are enjoying your first weekend back at school. I will intrude with a couple of notes. First, the first 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. Second, we will be starting with the first lecture note packet in class on Monday. Please have it with you for class. Have a great weekend! Until next time!

Attachment: Issue 1 (February 9)

First things first. This week, we will be delving into the mechanics of discount rates, starting with the risk free rate and then moving on to the equity risk premium. They are both central to valuation and we live in unusual times, where the former, in particular, is doing strange things.

Second, we will be starting off tomorrow's class with the question of firm versus equity valuation. I am attaching the cash flow table that we will be using for the start-of-the-class test as well. If you get a chance, please take a look at it before you come into class. The question is at the bottom of the page.

Third, I was checking out the Google shared spreadsheet on my first valuation of the week. Well done! I see 85 of you have tried to value the franchise. You can still do it, if you have not done it already. If you have already forgotten about it, you can find the details on the webcast page for the class.

Until next time!

Attachment: Cash flow consistency: A test (Congoleum)

Today's class started with a look at a major investment banking valuation of a target company in an acquisition and why having a big name on a valuation does not always mean that a valuation follows first principles. We began our intrinsic value discussion by talking about the weapons of mass distraction. If you want to read the blog post I have on the topic, try this link:
After setting the table for the key inputs that drive value - cash flows, growth, risk, we looked at the process for estimating the cost of equity in a valuation. In particular, we broke down risks into different types and argued that only some of these risks belong in discount rates, if investors are diversified. 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. Until next time!

Attachments: Post-class test and solution.

You did such a good job with the Apple valuation that I decided to stay with another high profile company for this week’s valuation and it is the other company that I wrote about tin my Apple blog post, Amazon. I have not been obsessed with Amazon since its early days, but everything I do, when valuing young companies, I learned the hard way, trying to value Amazon in 1998. I have valued the company every year since. I have bought it four times during its lifetime and sold it four times. After my September 2018 post (http://aswathdamodaran.blogspot.com/2018/09/amazon-and-apple-at-trillion-follow-up.html ), I sold short on the stock for the first time in my life. I was terrified, but I got lucky, and my short sale closed out at $1312. A few days ago, Amazon came out with its most recent 10K (annual report).
Most recent 10K: https://ir.aboutamazon.com/sec-filings/sec-filing/10-k/0001018724-19-000004 
The stock is back up to $1626 today and my most recent valuation is at the link below:
Amazon valuation in February: http://www.stern.nyu.edu/~adamodar/pc/blog/AmazonFeb2019.xlsx
As with the Apple valuation, I have created a shared Google spreadsheet and the link is below:
As a side note, I am an Amazon Prime member and I have been fascinated by how Amazon has used Prime to create an army that it can send out disrupt any business. In fact, I used my user-valuation platform to value a Prime member and the entire service in 2017. It is dated, but you can update the numbers yourself and see what Prime is worth to Amazon:
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:
If you want to see my updated perspective on risk free rates, try my data post on the issue from earlier this year:

We just started on the discussion of equity risk premiums but the contours of the discussion should be clear.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
Click on current data, and look to the top of the table of downloadable data items. Finally, The post class test and solution are attached. 

One final note. It is Wednesday and time for the first weekly challenge, and it relates to the consistency of equity versus firm valuation. I have attached it and will post my solution by Sunday night. Until next time!

Attachments: Post-class test and solution.

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
Presentation to back video: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/PG/Reading10KPG.pdf 
One interesting feature of both the Amazon and Apple 10Ks that I linked up to in the valuation of the week webcasts is that they are both compact (<90 pages). One casual empiricism: based on my experience, the longer the 10K for a company, the more trouble the company is in, and the more it has to hide.

Hope that you have only fun stuff planned for this weekend, other than all the things that you have to do for corporate finance. May the force be with you! Newsletter attached.

Attachment: Issue 2 (February 16)


I hope that you had a good weekend. Two quick loose ends to tie up. First, I noticed that I sent you the same Valuation Tools webcast in weeks 1 & 2. The mistake I made was in week 1, when I wanted to send you a webcast on getting data. That webcast is still available on the webcast page for the class. Second, I sent you a weekly challenge last Wednesday. I don’t know whether you had a chance to try, but it is still not too late. I have attached the solution to that weekly challenge (and the weekly challenge, in case you have no idea what I am talking about). This week, we will turn our attention to equity risk premiums, talking about historical and forward-looking estimates, as well as country risk premiums. We will then move on to the cost of debt and capital. So, if you are shaky about any of those concepts, I hope that you are rock solid, by the end of the week.

Attachment: Weekly Challenge #1 Solution

In the first two valuations of the week, we looked at two of the most valuable firms in the world, coming off a decade of success in their businesses. In this one, I am going to look at a company that is approaching the end of a long and illustrious life, GE. Valuing GE has always been a nightmarish exercise, because of its multiple businesses and the presence of a bank (GE Capital) in its midst. It is now facing the downsides of Jack Welch’s expansion of its financial services arm, and you may want to start with this blog post that I had on GE in November 2018:
I apologize for those of you who may be offended by my use of the Bataan Death March (I heard from a lot of people who claimed to be…) , but my point is that this is not a story that is likely to have a happy ending.

Since I did that valuation, GE has had one earnings call and you can find the link to that call here;
However, they have not filed their 10K (in contrast to Apple and Amazon that had full filings with the SEC almost immediately after their earnings calls.) There was information in the earnings call on selected items and I am attaching the S&P Capital IQ reports with 2018 preliminary numbers.
Finally, I used the GE analysis to draw a contrast between valuing a company and pricing it, and you can read about the contrast in the blog post. My updated value per share for GE is now down to $9.54, with much of the collapse coming from the imposing in the power division’s revenues/earnings. My updated pricing, though, is now at $15.76. You can find these numbers at the link below:
The stock was trading today at $10.13, higher than the value and lower than the price. Since I bought GE shares right after my blog post in November at about $8.00/share, I was faced with an existential question (at least at the investment level). Am I an investor (driven by value) or a trader (looking at pricing)? I had to do what is consistent with my philosophy, which is to sell. Your valuation, pricing and decision may be different. So, if you are up for it, try it out and enter your numbers in the Google shared spreadsheet:

In the session today, we started by doing a brief test on risk premiums. After a brief foray into lambda, a more composite way of measuring country risk, we spent the rest of the session talking about the dynamics of implied equity risk premiums and what makes them go up, down or stay unchanged. We then moved to cross market comparisons, first by comparing the ERP to bond default spreads, then bringing in real estate risk premiums and then extending the concept to comparing ERPs across countries. Finally, I made the argument that you should not stray too far from the current implied premium, when valuing individual companies, because doing so will make your end valuation a function of what you think about the market and the company. If you have strong views on the market being over valued or under valued, it is best to separate it from your company valuation. I am attaching the excel spreadsheet that I used to compute the implied ERP at the start of February 2019. Play with it when you get a chance. Post class test and solution attached.

Attachments: Post class test and solution


I know that most of you did not have a chance to try the first weekly challenge, and I completely understand. Today, as we were talking about implied ERP and their relationship to interest rates, I promised you a second weekly challenge. I have attached the challenge and the data that you will need to answer the questions. I will post my solution on Sunday. 

Attachment: Implied premium challenge, data

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 will post a webcast tomorrow not the estimation process. 

On a different note, the TAs for this class, Vikram Gulati and Chigusa Katoku, have kindly agreed to run review sessions every week, on Mondays from 12-1 in KMEC 3-70. Since there are only 70 seats in that room, I have created a shared spreadsheet, where you can sign up for the class;
2/22/19 First things first. I hope that you have had a chance to register for S&P Capital IQ. Second, there are two tools webcasts are up this week. 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! 

Last week, we continued on our discussion of discount rates by looking at how best to estimate the equity risk premium. This week, we will complete that discussion and start on the meat and potatoes part of valuation, which is cash flows.

Attachments: Issue 3 (February 23)

This week, we will complete our discussion of hurdle rates and move on to murkier territory, where we estimate earnings and cash flows. I hope you had a chance to try the weekly challenge. If you did, the solution is at the link below.
Give it a glance, if you have the time!
2/25/19 In today’s class, we started by tying some loose ends on equity risk premiums and then reviewing the pitfalls of regression betas. We went on to talk about bottom up betas, focusing on defining comparable firms and expanding the sample. I did make a big deal about bottom up betas, but may have still not convinced you or left you hazy about some of the details. If so, I thought it might be simpler to just send you a document that I put together on the top ten questions that you may have or get asked about bottom up betas. I think it covers pretty much all of the mechanics of the estimation process, but I am sure that I have missed a few things.
In the next session, 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, and 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.
Last Friday, 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%. 
While companies reporting bad numbers is not uncommon, what makes 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. While I am working on a post on why this unquestioning faith in investment Gods is dangerous and delusional, I am posting my valuation of Kraft Heinz. 
The financial information, including the most updated earnings report, can be found at this link:
I find the company close to correctly valued, with a value of $34.88, almost equal to the stock price of $34.23. While I would not buy the stock at today’s price, I would not sell, if I had been owning the stock prior to the earnings report (thank God, I was not). As always, you can enter your numbers in the Google shared spreadsheet;
Last Friday, 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%. 
While companies reporting bad numbers is not uncommon, what makes 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. While I am working on a post on why this unquestioning faith in investment Gods is dangerous and delusional, I am posting my valuation of Kraft Heinz. 
The financial information, including the most updated earnings report, can be found at this link:
I find the company close to correctly valued, with a value of $34.88, almost equal to the stock price of $34.23. While I would not buy the stock at today’s price, I would not sell, if I had been owning the stock prior to the earnings report (thank God, I was not). As always, you can enter your numbers in the Google shared spreadsheet;

Attachments: Post class test and solution

2/28/19 The first quiz is coming up and I wanted to cover some logistical details.
1. Quiz location and timing: The quiz will be from 1.30-2 on Wednesday, March 6. There will be two extra rooms 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 - K KMEC 2-90
L - 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 up until growth (about slide 152); 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 just the past few years. While there are older quizzes you can cover, these are much more relevant for the quiz at hand.. If you do run into a growth question, skip it.
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. 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.

I know that you are not even thinking about the project this week, with the quiz coming up, but in case you are, you should try estimating a cost of capital for your company, since you have all the pieces to do so. As we switch gears and move from discount rates to cash flows, you may find this weekly challenge helps you cement the basics. Give it your best shot, and as always, the solution will be coming your way on Sunday. Until next time!

Attachment: Weekly challenge #3

I know that you have big plans for the weekend and it is my job to ruin them. If you feel the urge to catch up on your project, I am going to give you the capacity to do so by posting not one, but two in-practice webcasts:
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).
I have also attached an updated version of the least spreadsheet you can use on your company to convert leases to debt. It will allow you to come to terms with your inner accountant.
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. Incidentally, I do want to draw your attention to two things that I did during the week that you may find useful (or perhaps not):
1. I did post my valuation of and blog post on Kraft Heinz, with a cautionary tale about blindly following investment Gods. The link is here:
2. I updated the equity risk premium for the S&p 500 to March 1, 2019. It is now 5.36% (down from 5.53% on February 1 and 5.96% on January 1).
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. 

Attachment: Issue 4 (March 2)

In tomorrow’s session, we will continue on the path of estimating earnings and getting to cash flows. Along the way, we will have to deal with tax rates, capital expenditures, working capital and other potential pitfalls. On Wednesday, you will take the quiz in the first 30 minutes of class, from 1.30-2, and please go to the room you have been assigned. The quiz is open book, open notes, calculators and iPads allowed, but no laptops or Excel on your tablets. There will be class after the quiz. I had sent you some prior year quizzes (2009-2015) with solutions, but a few of you seem to think that it is not enough and would like more. Who am I to argue? If you want all quizzes that I have given (1997-2016), you can get them at the links below:
Quizzes: http://www.stern.nyu.edu/~adamodar/pdfiles/eqexams/quiz1.pdf
Solutions: http://www.stern.nyu.edu/~adamodar/pdfiles/eqexams/quiz1sol.xlsx
I think it is over kill, but whatever makes you happy. Finally, remember to let me know if you are not taking the quiz, before the quiz (by 1.30 pm on Wednesday). 
3/3/19 As you probably heard, NYU has wimped out and canceled classes for tomorrow. I almost wish I could override the university and meet anyway, but I don’t think that I am allowed to. Here is what I plan to do. I will record a class tomorrow and put it online for you to watch, any time before Wednesday. Your quiz will be as scheduled on Wednesday and the logistics remain unchanged. As a compromise, I will keep the quiz coverage through whatever we did in class through last Wednesday. I think that is the fairest solution, since I get to cover the material that I want to cover, you get the day off tomorrow to prepare for the quiz and watch the webcast sometime during the day. 
That was one heck of a bad call on a snow day for today. Nothing that I can do about it, but since it cost each of you about $275 (your tuition divided by the number of class sessions each year), I thought I should try and make it up to you by teaching the class that I would have taught today anyway.  The webcast for the class can be found at the link below:
Try taking the start of the class on your own, but the slides and the post class test/solutions are below:
Please try to watch the session before class on Wednesday, since I will continue where I leave off at the end of this session.I know that you have other things to do, like preparing for the quiz, but it is only an hour.  During the session, we continued with our discussion of earnings, starting with how to capitalize R&D and the effects on earnings, cash flows and returns. We continued our earnings analysis, by looking at what to do about one-time or unusual items, and how to after-tax the income. Along the way, I mentioned forensic accounting and its objective of finding accounting fraud. If you are interested, here are a couple of forensic accounting books that are readable:
  1. http://www.amazon.com/Financial-Shenanigans-Accounting-Gimmicks-Reports/dp/0071703071/ref=pd_sim_b_8
  2. http://www.amazon.com/Creative-Cash-Flow-Reporting-Sustainable/dp/0471469181/ref=pd_sim_b_2
There are denser books on the topics but those are for forensic accountants.  We also looked at the challenge of money losing companies. We then moved on to estimating reinvestment in all its forms, and its links to growth. In the final part of the class, we started on estimating growth, by looking at the allure of past growth and why it is not a fact but an estimate.
I know that a valuation of the week is not exactly what you want to work on right now, but since the prospectus got filed last Friday and things are still fresh, I decided to take Lyft and make it my valuation of the week. For those of you who are unfamiliar with the ride sharing business, my suggestion is that you start with a series of posts that I put up on the topic in 2015. They are dated, in terms of numbers, but not in terms of challenges:
  1. On the Uber Rollercoaster: http://aswathdamodaran.blogspot.com/2015/10/on-uber-rollercoaster-narrative-tweaks.html
  2. An early blog post on Uber versus Lyft: http://aswathdamodaran.blogspot.com/2015/10/dream-big-or-stay-focused-lyfts-counter.html
  3. The Future of Ride sharing: http://aswathdamodaran.blogspot.com/2015/10/the-ride-sharing-business-playing-pundit.html
Once you have that background, open up the Lyft prospectus:
For those of you who have never used a prospectus, you will notice that it looks a lot like a 10K or annual report, but contains IPO-specific information including how much the company is planning to raise in the IPO and what it plans to use the proceeds for. Since this is the first round, Lyft has not even decided on how much to raise, but it is rumored to be somewhere in the order of $2 billion. Finally, you can see my Lyft valuation at the link below:
It is a very user-friendly valuation, where rather than inputs on numbers, which are in the prospectus anyway, I ask you for story choices (you will see what I mean when you open the spreadsheet). Make your choices, and when ready, please go to the Google shared spreadsheet and let the world know:
Let’s see what the bankers price the offering at, and if their pricing is close to the crowd valuation, that is occasion for worry, since their job is to price the offering. I am working on a blog post that includes the valuation, but you get an advance view.
As you know, tomorrow is the day of the quiz in the first 30 minutes of class (1.30-2.00). As a reminder, please go to the room that you have been assigned:
If your last name begins with Go to
A -H KMEC 2-60
I - K KMEC 2-90
L - Z Paulson
The quiz is open book, open notes, open iPad but no calculators. It will cover everything that we did through last Wednesday’s class (through operating leases). I know that some of you are stressed out, and I will not ask you to relax, because that never works. Just remember that there are no tricks on the quiz, that I am not trying to trip you up and I really, really want you to do well. In fact, if you have any last minute doubts, I will be up until midnight and will be glad to answer your questions. If you are done with the quiz preparation, please try to watch yesterday’s online lecture. You can find it at:

The first quiz is now firmly in your rear view mirror. So, let’s focus on the what’s coming. In class today, I talked about the difficulties of trusting historical growth and why analyst estimates of growth don’t have much information embedded in them. I also did a quick recap of the online class that I put up on cash flows that I hope that you get a chance to watch before next week. I will be skipping the weekly challenge this week and there is not post class test or solution for today, because you have enough valuation for the week. 

Want them or not, your quizzes are done. Here are the details on how you can pick them up and check your score:
  1. Where? The quizzes are on the ninth floor of KMEC. As you come off the elevator and before you get to the door leading into the offices, look to your right and you will see a table. The quizzes are on the top shelf.
  2. How? They are in alphabetical order, face down and sorted neatly into three piles. Please just take your quiz, don’t browse and do not mess with the sorted stacks. I have cameras installed that are watching you at all times and drones ready to attack, if you try!
  3. Score check: Once you get the quiz, please take a look at the attached solution. It includes my grading template. You will notice that there are two solutions. The first one (EquQuiz1asol) has Vietnamese Dong in the first problem and the second one (EqQuiz1bsol) has Nigerian Naira for the first problem.  If you feel that I have been unfair to you, you can either come into my office or take a picture of the section of the quiz with which you have a grading issue and send it to me. (I have also put hard copies of the solutions with your quiz. Look on the shelf below your quizzes).
  4. Grade check. You can also check your quiz score against the distribution that I have attached. Remember that not only is this quiz only 10% of your grade but that your worst quiz grade, if you take all the quizzes, will be replaced by your average score on the other exams. So, if you did badly, relax! And if you did really well, chill! Until next time!

Attachments: Solution (a or b\) as well as the distribution of grades

3/7/19 The quiz stack is much smaller than it was at the start of the day. I guess that must mean that many of you have picked up your quizzes. As you see in the distribution, while the median score was about 7.5, there were far more scores under 4 than I would have liked to see. That must mean that there is a subgroup in the class that is having trouble, either conceptually or mechanically, with the material in the class and that is my fault, not yours. While I won’t bombard you with more stuff today, when you are still shell shocked, I will think about what I can do to make this class easier for you in the weeks following. In the meantime, I have posted both exams and solutions online. (As I was posting them, I noticed that in the Nigerian Naira, my solution started with a dollar cost of equity of 9%, when it should have used 8%. While the effect on value is minimal, I made the fix in the link on your webcast page. 
3/8/19 I know that you are in no mood for valuation, but in case you are, I have a webcast on converting R&D from operating to capital expenses. I use Microsoft from a year gone by to illustrate this concept:
How to capitalize R&D: http://www.stern.nyu.edu/~adamodar/podcasts/Webcasts/R&D.mp4
Microsoft 10K 2011: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/webcasts/R&D/Microsoftlastyear10K.docx
Microsoft 10K 2012: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/webcasts/R&D/Microsoft10K.docx
Remember also that this same template can be used to capitalize other R&D like expenses, including brand name advertising for a consumer product company and customer acquisition costs for a subscriber-based or user-based company. 

One final note, before I put the first quiz to rest. On the last question of the quiz, where you will given lease commitments for the next 3 years and the lease payment for the last year, some of you used all four payments to compute lease debt and the depreciation on it. In my answer sheet, I used only the commitments for the next 3 years to compute my debt. Since debt is always based on forward looking commitments, that is the right thing to do. However, when computing depreciation from this value, there is a timing issue that I have glossed over/ The depreciation that I get is for the next year and not for the trailing 12 months. That said, the solution is to not to go backwards and include last year’s lease payment and make it a four year lease. If you want to do it right, you have to go back to the previous year’s financials and get the lease commitments for the future from that report and compute the PV and depreciation from that number. (Note that the lease commitment for last year does not have to be equal to the lease payment for least year and that the leases can have a 3-year window, where they fall over from period to period. If you were truly wrestling with this issue and you made the judgment that you did, I will give you the half point that I took away back, but if your reasoning was based upon something else, my solution stands. 
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. Finally, if you are interested in the Lyft IPO, and perhaps even tried your hand at the valuation of the week, here is the post that I put up on the company:

Attachment: Issue 5 (March 9)


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. 

In today’s session, we started by looking at fundamental growth in all its variants. With EPS, net income and operating income, we argued that the long term or sustainable growth rate for a firm is a function of how much it reinvests and how well it reinvests, with the measurement of each varying depending upon the earnings metric. We then looked at the possibility of efficiency growth in the short term, as ROE or ROIC change, and finally at the most general way of estimating cash flows, where we start with revenues, then forecast margins and tie up loose ends with reinvestment, tied to sales. In the final part o the session, we looked ways to keep the terminal value from running away with your valuation by capping growth, limiting the growth period and reinvesting enough to sustain growth. 

I have two reading suggestions if you are interested. First, I mentioned my incredibly boring paper on accounting returns. You can find it here:
Consider yourself forewarned. The blog posts that I have on terminal value may be more up your alley:
  1. If you don't believe in forever, you cannot do a DCF
  2. As g->r, to infinity and beyond
  3. Growth is good, more growth is better
  4. Negative Growth Rates Forever? Impossible?
  5. The Terminal Value ate my DCF
They capture everything we talked about in class today. 

Attachments: Post class test and solution

I know that many of you are either on your break already or mentally there, and I had promised no nagging, but one last email before you go about sundry items:
1. Quizzes: There were a few quizzes that never got picked. I am assuming that their owners either don’t want to know what’s in them. Those quizzes are now in my office and unfortunately, they cannot be picked up until after break.
2. 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 not one, not two but thee tools webcasts to help you on your way. 
A. Accounting Returns: As you saw in the discussion of fundamentals, accounting returns (ROE, ROIC) play a big role in determining not just how high your growth rate is, but how much value that growth will add or destroy. 
B. Terminal Value: We talked about checks on terminal value. In this webcast, I look at ways in which you can take your terminal value number and diagnose it for problems.
C. Employee Options: We have not got to this in class yet, but in case you get ahead of me, 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. (Fcffsimpleginzu is the one that will look most familiar, because I use it in almost 80% of my valuations).

Most of all, just remember to relax and have fun, and you will not hear from me until a week from Saturday. Enjoy the break!
You must admit that I was remarkably self-restrained during the break and fought the urge to send you more and more messages. That time is now over and I am baaaaaaaack! 
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.

2. The Project: As you know (or should know), your DCF is due next Friday (March 29) 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. 

3. Lecture Note packet 2: Finally, we are approaching the end of the first lecture note packet for the class. When you get a chance, please print off or download or buy the second packet:
See you in class in a couple of days.

Attachments: Issue 6 (March 23)
connecting stories to numbers. The DCF is due by late Friday (March 29) (try to get it in by 5 pm, but if not, 6 pm or 7pm..). If you can get it in earlier, all the better. A few notes on the submission:
1. Individual, not group: This portion of the submission can be done individually and should be done individually rather than as a group, The feedback is specifically for you.
2. Submission content: An Excel spreadsheet will do, with notes embedded on your story and any specific assumptions
3. Submission subject: Use “My Perfect DCF” in your subject
Remember that this DCF is for feedback, not a grade, but work on it as if were your final valuation. That way, the feedback will be more focused and perhaps more useful.  To put a bow on this part of the class, I have a blog post that you may find enjoyable about dysfunctional DCFs. 

We started today’s class by tying up two last loose ends, what to count as debt when you net out to get to equity value and how to deal with stock based compensation. The rest of today’s class was about connecting stories to numbers. Using Uber as an example, I went through the process of telling a story about a company and then converting that number into a valuation. Ultimately, valuation is as much about story telling as it is about modeling. The post class test and solution are attached.

Attachments: Post class test and solution

If you thought the last few months on Brexit have been chaotic, this week may take the cake, as the House of Commons grapples with as many as seven different options on Brexit, ranging from a No-deal Brexit to no Brexit at all. I am sure that analysts in the UK have stopped valuing companies, waiting for this uncertainty to resolve itself. However, your opportunities also abound when it is darkest. This week, I have taken easyJet, 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
Once you have had a chance to work on these valuations, you are welcome to go in and enter your numbers in the Google shared spreadsheet:
In today’s class, we talked about how story breaks, shifts and changes. Since some of you will be dealing with new earnings reports, I thought you may find these two posts of interest in how narratives shift, and with them, values:
Reacting to Earnings Reports: http://aswathdamodaran.blogspot.com/2014/08/reacting-to-earnings-reports-lets-get.html
Narrative Resets: http://aswathdamodaran.blogspot.com/2015/08/narrative-resets-revisiting-tech-trio.html 
We started with two conventional valuations, one of Con Ed, another of  3M. If you are still wrestling with the question of management options, I have a weekly challenge that may help you work through your doubts:
Of course, the stories on these companies has evolved since, but it should give you a taste of how narratives change.

I hate to be a nag but your DCF is due for feedback on Friday. Again, I will emphasize that I will not be grading your DCF. Here are some more details about this submission:
1. All you will be doing is sending me your spreadsheet for your company (it could be one of my spreadsheets that you have adapted to your company). I have made a big deal about story telling but you can put your story into the spreadsheet, generally on your input page. I like to connect my story to individual assumptions. I have attached my Snap example.
2. I will take a look and provide feedback which can range from “This looks good. Nothing more to do” to “These numbers are at war with each other”, with specific comments on inputs that worry me. You are welcome to modify your valuation to reflect my feedback or to ignore it. 
3. If you are already done, you can send it to me any time you feel ready to do so. Just one request. Given that I have two classes of 300 and emails can get lost, please make sure that you include “My Perfect DCF” in the subject line. Please don’t try to be clever and modify this title since it is a computer algorithm that does not get either nuance or irony.

Attachments: Post class test and solution

For those of you who have sent in your DCFs already, thank you. For those of you still working on them, keep at it. For those of you who will pass on the option tomorrow, I understand. As you work through the mechanics, please keep in mind the following:
  1. You will be turning in a spreadsheet, not a report.
  2. Your submission for tomorrow will be individual, not as a group.
  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/fcffsimpleginzu2019.xlsx
  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. Try your best.
3/29/19 No valuation tools webcast this week, since you already have done so much valuation for your project. The DCFs have been rolling in, and I am about 250 valuations behind on my emails, but I am working on catching up, It is still early, but your next quiz in valuation is a week from Monday (on April 8) and if you want to get a head start, you can check out the quiz review session, as well as the past quizzes with solutions on the webcast page for the class. If you prefer to wait, I will send you more detailed instructions next week. Finally, Lyft went public today and saw its stock price zoom more than 20% on the offering, for a market cap of more than $30 billion. The pricing game is in full flow.

I am working through the DCFs and I hope to get you yours back as soon as I can. I am taking a break, though, and attaching your weekly newsletter, just in case you feel the urge to read something different.

Attachment: Issue 7 (March 30)

By now, many of you (about 300, by my count, out of a class close to 400) should have received back your DCF valuation back. If you have not received yours back, you should be getting it in the next few days. 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.

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 2.5% 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 5.36% (March 2019). 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.

Output page checks:
a. High Growth Period.
Start by checking the length of the growth period and the cash flows during the growth period. In particular,
- Compare the FCFF (or FCFE) to the EBIT (1-t) (or Net Income). Especially if you are forecasting cap ex, working capital and depreciation independently, compute an implied reinvestment rate
Implied Reinvestment Rate = 1 - FCFF/ (EBIT (1-t)  or 1 - FCFE/ Net Income
Thus, if you have after-tax operating income of 100 and FCFF of 95, your implied reinvestment rate is 5%. 
- Look at the expected growth rate over the period. Does it jive with your reinvestment rate? (If you see a high growth rate with a low reinvestment rate, the only way you can justify it is by calling on efficiency growth. For that argument to make sense, your current return on capital has to be a low number... 
- If you are forecasting operating income, cap ex, depreciation and working capital as individual line items, back out your imputed return on capital:
Imputed Return on Capital = Expected EBIT (1-t)/ (Base Year Capital Invested + Sum of all reinvestment through year t-1)
If you see this number taking off through the roof or dropping towards zero by the time you get to year 10, your reinvestment assumptions are unreasonable.
b. Terminal value
Start by checking to make sure your growth rate forever does not exceed your riskfree rate. Then follow up by
- Examining your reinvestment rate in your terminal year, using the same formula we used in high growth
- Backing out your implied return on capital (ROC = g/ Reinvestment Rate)
- Checking against your cost of capital in stable growth (you don't want to get more than 5% higher than the cost of capital and you do not want to set it lower than the cost of capital forever)
I have a spreadsheet that can help in this diagnostic (and there is a webcast that you can use as well from a few weeks ago)
One common error to watch out for is estimates of terminal value that use the cash flow in the final year, grow it out at the stable growth rate. That locks in your reinvestment rate from your last high growth year forever.
c. Cost of capital
As a general rule, your cost of capital should be consistent with your growth assumptions. Thus, you should expect to see betas move towards the stable range (0.8-1.2) and your debt ratios to rise towards industry average. Thus, your cost of capital in stable growth should be different from the cost of capital in high growth.
d. Final value of equity
Check for danger signs, including
- Cash and cross holdings becoming a huge percentage of value
- Options either being ignored or being a huge number

Market Price
As a final sanity check, look at the current market price. If your value is not even in the ballpark, go back and repeat all of the earlier steps...

Try it out with your own DCF valuation and then offer to do it for a friend... Then, take your toolkit on the road. Pick up a valuation done by an investment bank or equity research analyst and see if you can diagnose any problems in them. You are well on your way to being a valuation guru. I  have also attached a full set of diagnostic questions that you can consider in the context of valuation to this email. 

Until next time!

Attachment: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postmortem.pdf

In today’s class, we looked at how best to adapt valuation models to value entire markets, as well as companies on the dark side of valuation. Specifically, we examined how best to value young companies with limited information. If you are interested, try this paper on valuing young companies:
The next quiz will be next Monday on April 8, and you will get details tomorrow.

Attachments: Post class test and solution

Since you are probably tired of the nitty gritty of valuing real companies, I decided that we should spend this week too on a “fun” valuation”. This is a throwback in time, but it is a valuation and pricing that I did of the Los Angeles Clippers, when Steve Ballmer paid $2 billion for the team. I explain how I value the Clippers and how I would value any sports franchise in this post:
You can find my valuation of the Clippers in this link:
You can do one of the two things in this week’s valuation challenge. 
1. You can take my Clipper valuation and make your own assumptions (there are relatively few) and value the Clippers as of June 2014. 
2. You can then follow up by trying to price the Clippers, a preview of the pivot that we will be making away from valuation in the weeks to come. To help, I have raw data on sports franchises below:
For MLB, NFL, NBA and NHL: http://www.stern.nyu.edu/~adamodar/pc/blog/SportsTeamData.xlsx 
For European soccer teams: http://www.stern.nyu.edu/~adamodar/pc/blog/eurosoccerrawdata.xls 
For IPL (Indian cricket) teams: http://www.stern.nyu.edu/~adamodar/pc/blog/IPLrawdata.xls 
The IPL and Euro soccer data is a little outdated and you are welcome to update them, if you want. 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. 

On a different note, we are getting close to tying a bow on packet 1 of your notes and moving on to packets 2 &3. You can download them at the following links:
Packet 2: http://www.stern.nyu.edu/~adamodar/pptfiles/val3E/valpacket2spr19.pptx 
Packer 3: http://www.stern.nyu.edu/~adamodar/pptfiles/val3E/valpacket3spr19.pptx 
We continued our excursion on the dark side of valuation by first looking at mature companies on the verge of transitions, and how you can use the two values (status quo and changed) to derive a value today. We then moved on to emerging market companies, where concerns about country risk and corporate governance have to incorporated. After a discussion of how valuing banks is now more difficult than historically, we examined how to estimate free cash flows to equity for a bank. If you are interested, my Deutsche Bank Valuation is explained in this post:
On Monday, we will move on to the second quiz for the class. It will cover the mechanics of DCF, starting with growth rates and terminal value and extended into the loose ends of valuation and the versions of the DCF we have used on the dark side. The links to the review for the quiz and the past quizzes 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.xls 
I think that they may be a problem with the room that we have for the spillover, but I will work on it and get back to you with seating plans. 

Attachments: Post class test and solution

the following:
1. Quiz date: The quiz is scheduled for the first 30 minutes of class on April 8, from 1.30 pm - 2.00 pm. If you will miss the quiz, please let me know before 1.30 pm.
2. Seating: Please use the following to determine which room you will be going to:
f your last name begins with Go to
A -M Paulson
N -T KMEC 2-60
U - Z KMEC 3-50
On a different note, while I returned most of the DCFs last weekend, there are about a hundred that are stubbornly stuck in my mailbox. So, if you have not received yours back, please don’t take it personally. I promise that I will turn my attention to them sometime before this week is done. Finally, please don’t forget to print off or download packet 2 for classes next week. It is time to move on to pricing. 
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:
Then watch the webcast:
You can download the presentation:
And the spreadsheet that goes through the calculations:
Second, as you get back to preparing for the quiz, you are probably struggling most with the section on cross holdings and equity options. I don’t know whether this will help but I have a short write up on cross holdings that you are welcome to use as as a guide.

Attachments: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/crossholdings.pdf

Just a quick note with the newsletter for the week. As you work through the past quizzes, remember to skip over the pricing problems (with multiples) that the earlier quizzes contain. This quiz is restricted to DCF valuation. See you on Monday in the scheduled rooms:
If your last name begins with Go to
A -M Paulson
N -T KMEC 2-60
U - Z KMEC 3-50

Attachments: Issue 8 (April 6)

I won’t even bring up what the rest of the week holds, since I am sure that you are focused on quiz stuff for now. There are two topics on the quiz which have historically given people trouble and I made a couple of webcasts to cover them. The first is cross holdings, always a mess, since we seem to add some things, subtract others and ignore still others. Try this 10 minute webcast that looks at four past quiz problems built around cross holdings:
The other is management options, much simpler, but still confusion. Try this even short review that is built around a couple of past quiz problems.
I hope that they help clarify matters, not confuse them. I will see you tomorrow in the designated rooms. 
If your last name begins with Go to
A -M Paulson
N -T KMEC 2-60
U - Z KMEC 3-50

The quizzes are done and can be picked up on the ninth floor of KMEC in the usual spot (Top shelf of the unit to the right, before you enter through the door). They are in alphabetical order. If you have privacy concerns and would prefer that I hope your quizzes in my office, please let me know and I will bring them into my office (as long as you promise to come by and pick them up). I have attached the solutions and the distribution of scores. Again, don’t read too much into the letter grades on the quiz, since it is 10% and one of your quizzes will be replaced (as you long as you take all three) by your better scores. Also, if you feel that I have been unfair or overlooked something that you have done (and it is entirely possible that I have), please come in with your quiz. (Don’t go to the TAs, since they bear no responsibility for any damage done to you.) 

Attachments: Solution (a or b) and distribution of grades

Many of you have picked up your quizzes already and that is good. If you have not, please do, since avoiding picking it up is not going to make it go away. On a different note, 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 the same time that Lyft did, but with a vastly different background and structure. You can start with the prospectus, which is far less painful to read than the Lyft prospectus:
You can read my thoughts about Levi Strauss here:
And download the valuation here:
And, if you want, try your hand and enter the numbers here:
As someone who wears Levis 501s half the days of the year, I wear my biases openly.

In today’s session, we started by looking at the mechanics of pricing and its allure to investors. We then looked at multiples as standardized prices and set up a four step process to assess pricing. In the first step, we asked definitional questions about whether a multiple is consistently defined and uniformly estimated. In the descriptional part, we looked at the distributional characteristics of multiples. In the analysis part, we evaluated ways of finding what drives multiples. In the application part, we looked at how to find comparable firms and control for differences. I have attached the post class test and solution, as well as the weekly challenge for this week. 

Attachment: Post class test and solution

4/11/19 I know that you just got your quiz back last week. So, I would not blame you for putting the big project on the back burner. Assuming that you have done your DCF, and perhaps even sent it to me and received feedback, you can, if you have time, complete the pricing section of the project. This will require you to get on S&P Capital IQ and downloading raw data on your company and the peer group (and you will have to make judgments on what to include in this peer group). You can then go through the pricing exercise, standardizing prices (with multiples), controlling for differences in risk, growth or whatever else the market seems to be pricing in and makinga pricing judgment on your company. Don’t be surprised if you get a pricing judgment (that your company is cheap or expensive) that contradicts your DCF conclusion. You will have to pick but there is no better illustration of the difference between value and price than doing both a DCF and relative valuation.
4/12/19 If you have trying your hand at the pricing part of your project, you probably also are recognizing that this is an exercise in working with data sets. I have put up a webcast that is more statistics than finance about how to look at data and try to evaluate relationships between variables. I use the banking sector to illustrate my case but I hope that you find it useful for both your  project.  If you are solid on your statistics, you can skip this webcast, since you already know everything that I am saying. If you need a quick review of the process, I think it will be useful.
Start with the webcast:
Download the slides:
Here is the raw data:
And the descriptive statistics:
It is Saturday and time for your next newsletter, which is attached. We are now into packet 2 of the lecture notes and you can either buy it at the bookstore (packet 3 is also in the same packet) or print it off. Finally, as you know, the Uber prospectus has been filed. It may be next week’s valuation of the week, but rather than wait for me, you can always preempt me and take my Lyft valuation and make it into an Uber valuation. Until next time. Here is the link to the prospectus. 

I have also attached my Lyft valuation.

Attachment: Issue 9 (April 13)


This week we will moving further into the pricing game, starting tomorrow with multiple pricing exercises, where I will play the role of a naive analyst putting out absurd pricing recommendations and you will use your newfound pricing skills to take them apart. Along the way, we will pay short visits to almost every multiple that you may run into from PE to EV to EBiTDA to revenue multiples. I also am attaching the solution to last week’s weekly challenge, which revolved over pricing.

Attachment: Weekly challenge solution


In this session, we continued our analysis of pricing by looking at applications. We started with the question of whether your comparable firms samples should be tightly defined (and small) or broadly defined (and large) and how to control for differences across firms. We then used the cumulated knowledge to pass judgment on a series of naive pricing recommendations. 

Attachments: Post class test and solution

As promised, this week’s valuation of the week is of Uber and I hope that you give it a shot. You should start with the prospectus (which is really long and a little confusing):
Then, you can read my blog post on Uber (but don’t let my story become your story)
Then you can look at both the top down and bottom up valuations that I have of Uber:
1. Top Down: https://www.stern.nyu.edu/~adamodar/pc/blog/UberIPO2019.xlsx
2. Rider-based: http://www.stern.nyu.edu/~adamodar/pc/blog/UberUserIPO2019.xlsx.xlsx 
Finally, I price Uber based upon Lyft’s pricing:
Once you have your story for Uber’s value, please enter your numbers in the Google shared spreadsheet:
In today's 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 attached this week’s two weekly challenges, which revolves around pricing companies.

Attachments: Post class test and solution

4/18/19 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, 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. 
4/19/19 Rather than hit you with another valuation tools webcast, I would like to direct you back to the webcast from last week on pricing. As you watch the webcast, you will notice that I draw on statistical tools, and while you can use Excel, it is far easier to use a statistical package. I know that Stern has Minitab. I use SPSS but there is a great add on pack for Excel called StatPlus. I think that it is well worth investing in a good statistics package not just for this class but for your professional life (whether it is in finance, marketing or even strategy). We live in a world of big data and statistics is designed to make sense of large and contradictory data.

It looks like a cloudy day in New York and that it may rain over the weekend (at least that is what my weather app says; I am far, far away). While that may put a crimp on your weekend festivities, the good news is that you may be able to catch up on your project; sorry, but it is my job to nag… The newsletter is attached.

Attachments: Issue 10 (April 20)

The third quiz is next Monday, and I thought it was time to give you a preview:
1. Quiz date/time: The quiz is scheduled for Monday, April 29, from 1.30-2.00. 
2. Quiz coverage: The quiz will cover all of pricing, asset based valuation and private company valuation (which is the last 20 slides or so of packet 1, all of packet 2).
3. Quiz seating: To make the seating as fair (Yes. People keep tabs of where they sit), I had to break up the quiz seating. Here is the seating arrangement:
f your last name begins with Go to
A -C KMEC 3-50
D - K KMEC 2-60
L -Z Paulson
4. Quiz review: To review for the quiz, you can use the following resources: