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Web Casts: Valuation - Spring 2014

This 26-session equity valuation class will be taped starting February 4, 2013, and the lectures are accessible in multiple ways. You can get the supporting lecture notes by clicking on the pdf files below - the pages covered by each lecture are provided next to each lecture. For the syllabus and other details, visit the home page .
Introduction to Valuation
Part I: Discounted Cashflow Valuation: This is a pdf file and works well if you have an iPad or tablet to read it on If you have trouble printing this file, download the powerpoint file. You can then choose to print the slides, one to a page, two or a page, in note format or whatever your heart desires. (Updated for Spring 2014 class).
Part II: Relative Valuation and Private Company Valuation : This is a pdf file and works well if you have an iPad or tablet to read it on If you have trouble printing this file, download the powerpoint file. You can then choose to print the slides, one to a page, two or a page, in note format or whatever your heart desires. (Updated for Spring 2014 class).
Part III: Real Options, Acqusition Valuation and Value Enhancement : This is a pdf file and works well if you have an iPad or tablet to read it on If you have trouble printing this file, download the powerpoint file.You can then choose to print the slides, one to a page, two or a page, in note format or whatever your heart desires. (Updated for Spring 2014 class).
Part IV: Closing Presentation

This page will include the webcasts from the current class. The webcasts can be accessed in one of three ways:
Streaming video (The file will be streamed to your computer. This will work only if you have a good internet connection, but should be of the best quality)
Video podcast (The .m4v file will be downloaded to your computer and you can watch the video using Quicktime or video software or on your iPod)
Audio podcast (The .mp3 file will be downloaded as an audio file and can be played on any audio player). The AV system used to record the lectures has changed and I think it is much improved.
The prior semester's webcasts can be found here.


If you want to join the Lore page for this class (or just lurk), here is the link.
If you would like to watch the sessions on Appe iTunes U on your Apple device, try this link.

Finally, you can read the emails that I send to the class by this link,as well as the newsletters for the class.

Session Webcasts Topics covered Lecture notes

1 (2/3/14)
Sorry. No webcast for this session. Catastrophic tech failure.

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Introduction to Class

Syllabus for class
Project Description
Introduction to Valuation (Page 1-4)

Post-class test and solution.
Valuation of the week # 1

A Valuation of Vale: Dealing with commodity & country risk

  1. Vale: Background Information
  2. Vale: Annual Report (2012)
  3. Vale: Yahoo! Financials
  4. Vale: Bloomberg Financial Summary

Vale Valuation Spreadsheets

  1. Vale: Cost of Capital
  2. Vale: Base Case Valuation
  3. Vale: Conservative Valuation
Google Shared Spreadsheet for Vale valuations

2 (2/5/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Valuation bias: A test and my solutions Introduction to Valuation (Pages 4-End)
Lecture note packet 1: Pages 1-8
Valuation: How much detail?
Valuation approaches
DCF: Valuation choices
Post-class test and solution.
Weekly Challenge #1

Reconciling firm and equity valuation

Weekly challenge #1
Solution
Valuation Tools Webcast #1
Getting Data for Valuation
Data collection: The first step
In this webcast, I look at the basics of getting the raw material needed for valuing a business - financial statements, sector information and macro economic data.
SEC website
SEC Live
FRED (Federal Reserve)

3 (2/10/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Cash flow consistency: A test (Congoleum)

Lecture note packet 1: Pages 9-39
CDS Spreads & ratings: February 2014

DCF Big picture
DCF inputs: The Discount Rate
- Setting the table
- Risk and the marginal investor
- The riskfree rate
Post-class test and solution.
Valuation of the week #2
A valuation of Twitter: Young growth companies and bipolar markets
Blog post on the Twitter valuation (February 2014)
Twitter's latest 10Q (which caused 25% drop in stock prices)
Twitter financials: Bloomberg summary page
My valuation of Twitter
Google shared spreadsheet

4 (2/12/14)

Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Risk Premiums: A test Lecture note packet 1: Pages 40-59
The Equity Risk Premium
- Historical Risk Premiums
- Country risk premiums & measuring exposure
Post-class test and solution.
Weekly Challenge #2 Country risk and risk premiums Weekly challenge # 2 (Simpler- China & Messier- Peru)
Solution (Simpler & Messier)
Valuation Tools Webcast #2
Implied Equity Risk Premiums
The logic and the measurement questions behind equity risk premiums Presentation
Spreadsheet
S&P 500 on buybacks
S&P 500 earnings
Valuation of the week #3
The Comcast acquistion of Time Warner Cable (TWC)
My blog post on the Comcast/TWC Deal
Comcast: Financial Summary
TWC: Financial Summary
Valuing Synergy
Google shared spreadsheet
5 (2/19/14)
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)
Implied Equity Risk Premiums: A test Lecture note packet 1: 60-84
Implied Equity Risk Premiums
- More on estimation
- Interaction with other "risk" premiums
First steps on betas
Post class test and solution
Weekly Challenge # 2a

Implied Premium versus Riskfree Rate

Implied premium challenge, data and solution
Valuation Tools Webcast #3
Estimating a risk free rate

Estimating a risk free rate

Estimating a risk free rate should be simple but it is often not. In some currencies, where there are no default free entities, it may take some work getting to a risk free rate. In this webcast, I look at the mechanics of this adjustment.

  1. Presentation
  2. Moody's ratings (3/13)
  3. CDS spreads (3/13)

Valuation Tools Webcast #4
Reading a 10K

Separating wheat (information) from chaff (data)
Changes in accounting and disclosure requirements have bulked up annual reports and 10Ks. While increased disclosure is useful, it is easy to get lost in the details. In this webcast, I use a 10K and a simple valuation spreadsheet to illustrate how to do a
"quick read" of a 10K.
  1. Presentation
  2. P&G: 10K
  3. P&G: Valuation (Excel spreadsheet)

6 (2/24/14)
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Betas and cost of capital: A test Lecture note packet 1: 85-103
Bottom up beta: The approach
The cost of debt
Debt ratios
Cost of capital
First steps on cash flows
Post class test and solution
Valuation of the week #4

Starbucks: Financial Summary Data
Starbucks: Last annual report
Starbucks (with conventional operating lease treatment)
Starbucks (with operating leases converted to debt)
Comparison of key valuation inputs/outputs for Starbucks
Debt, Leases and Value (My paper)

Google Shared Spreadsheet for Starbucks
7 (2/26/14)
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)
Cash flows: A test Packet 1: 104-123

Earnings and cash flows
- Cleaning up earnings
- Normalizing earnings
- Taxes

Post class test and solution
Weekly Challenge # 3

Adjusting Operating Earnings

Weekly challenge #3
Solution & Synthetic rating
Valuation Tools Webcast #5
Trailing 12 month earnings
How to use financial statements to create trailing 12 month numbers
  1. Apple: 10K
  2. Apple: 10Q
  3. Apple Trailing 12-month (spreadsheet)
Valuation Tools Webcast #6
Converting leases to debt
The process of converting operating lease commitments to debt
  1. Disney Annual Report
  2. Converting leases to debt (spreadsheet)
Valuation Tools Webcast #7
Capitalizing R&D expenses
The process of converting R&D (and like expenses) from operating to capital expenses
  1. Microsoft: 10K for 2012
  2. Microsoft: 10K for 2011
  3. Converting R&D to capital (spreadsheet)

8 (3/3/14)
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Growth rates I: A test Packet 1: Page 124-147
Working capital investments
From FCFF to FCFE
Leverage and FCFE
Growth rates
- Historical growth rates
- Analyst estimates of growth
Post class test and solution
Review session for Quiz 1
Webcast
Review session for the first quiz
  1. Review presentation
  2. Past Quiz 1s
  3. Solution to Past Quiz 1s
Valuation of the week #5

Merck: Annual Report
Merck: Valuation (with R&D capitalized)
Merck: Valuation (with conventional accounting treatment of R&D)
Merck: Evaluation of R&D

Google Shared Spreadsheet

9 (3/5/14
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Take the first quiz and check out the solution as well as the distribution of grades for the class. Packet 1: Pages 148-165
Fundamental growth rates
- Growth in earnings per share
- Growth in non-cash net income
- Growth in operating income
- Efficiency growth
- Growth when margins are changing
Post class test and solution
Weekly Challenge # 4

Estimating fundamental growth

Weekly challenge
Solution
Valuation Tools Webcast #8
Estimating accounting returns (ROE, ROIC)
In assessing whether a company's existing investments are good or not, we draw on accounting return measures: return on invested capital and return on equity. However, navigating what should be in invested capital and what should not, and how to adjust for accounting inconsistencies is tricky.
  1. Walmart 10K (2013)
  2. Walmart 10K (2012)
  3. Spreadsheet
10 (3/10/14)
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)
Terminal Value: A test Packet 1: 166-189
Closing thoughts on growth
Terminal value
Choosing the right model
Post class test and solution
Valuation of the Week #6
Valuing Bitcoin (NOT)
- My post on Bitcoin
- Bitcoin data (price, users, transactions etc.)
Google Shared Spreadsheet
11 (3/12/14)
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)
Loose Ends: A test Packet 1: 190-204
Valuing Cash
Dealing with cross holdings
Other assets
Post class test and solution
Weekly Challenge #4a
Terminal Value Weekly challenge
Solution
Valuation Tools Webcast #9 (Checking Terminal Value)
The terminal value is a "big" number in DCF valuation, but it is subject to misuse and manipuluation. In this session, I take a look at how you can detect problems with a terminal value computation (in both your own DCFs and in other people's DCFs) Sample DCF valuation
Terminal value analyzer
12 (3/24/14
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)
DCF valuation: A test Packet 1: 205-233
Complexity
Debt & Legal Jeopardy
Dealing with Employee Options
Valuing companies
- Stable growth DDM
- Macro effects on valuation
- Valuing the "market"
Post class test and solution
Valuation of the Week #7

Valuing Tesla
- My blog post on Tesla in September 2013 (with valuation)
- My blog post on Tesla in March 2014 (with valuation)
- Tesla's 10K for 2013

Google Shared Spreadsheet
13 (3/26/14)
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)
DCF Valuation II: A test Packet 1: 234-259
Valuing young, growth companies
Valuing mature companies
Valuing declining and distressed companies
Valuing emerging market companies
Post class test and solution
Weekly Challenge #5
Management Options and Equity Value

Weekly challenge
Solution & Option value

Valuation Tools Webcast #10: Dealing with Employee Options
When companies compensate employees with options, they create a second claim on equity. When valuing common shares in these companies, you have to incorporate the effect of options outstanding on equity value and I try to look at how in this webcast. Cisco 10K
Option spreadsheet

14 (3/31/14)
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

DCF Valuation III: A test

Packet 1: 260-286
Valuing distressed companies
Valuing emerging market companies
Valuing financial service companies
Post class test and solution
Valuation of the week #8
Citigroup 10K for 2013
Citigroup geographic segment information
Citigroup fails stress test
Citigroup stable growth dividend discount model
Google shared spreadsheet

15 (4/2/14)
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Relative Valuation I: A test

Packet 1: 287-End
Packet 2: 1 -8

 

Valuing Cyclical & Commodity Companies
Price versus Value
Relative valuation
- Description
- Ingredients
Post class test and solution
Review session for Quiz 2
Webcast
Review session for the second quiz
  1. Review presentation
  2. Past Quiz 2s
  3. Solution to Past Quiz 2s
Weekly Challenge #6
Multiple: Definitional test Weekly Challenge
Solution
16 (4/7/14)
Quiz in first 35 minutes. Skip forward.
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)

Audio Podcast (downloadable)

Take the second quiz and check out the solution as well as the distribution of grades for the class. Packet 2: 9-25
Analysis of multiples
- PE ratio for a high growth firm
- Determinants of PE ratios
- Comparing PE across markets and time
Post class test and solution
Valuation of the week #9
  1. Yahoo! - The Big Picture
  2. Yahoo! US - Valuing the Parent company & Bloomberg summary
  3. Yahoo! Japan - Valuing the entity and its equity & Bloomberg summary
  4. Alibaba: A rudimental intrinsic valuation
  5. Yahoo! Master Valaution
Google shared spreadsheet
Mystery Project (Due April 25 at 5 pm)
The mystery project Data for mystery project
17 (4/9/14)
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)
Relative Valuation IIa: Test Packet 2: 26-58

- More on analyzing multiples
* Comparing PE ratios across countries and time
* Comparing multiples across companies
* Controlling for differences

Post class test and solution
Weekly Challenge #7a
Relative valuation Weekly challenge
Solution

Valuation Tools Webcast #11: EV, Firm Value and Equity Value

The "value" embedded in a multiple can be the value of the entire firm, the value of its operating assets (enterprise value) or the value of the equity. In this webcast, we look at the differences between the three and why you may use one over the other. Blog post on topic
Presentation
Excel spreadsheet
18 (4/14/14)
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)
Relative Valuation IIIa: Test Packet 2: 59-93
Sector regressions: Unstable or young sectors
Market regressions
Picking the right multiple
Relative versus Intrinsic value
Sector versus Market value
Post class test and solution
Valuation of the week #9
  1. Global Internet Retail (32 firms)
  2. US large retail (market cap> $10 billion) (22 firms)
  3. Amazon versus Sector: My relative valuation
Google shared spreadsheet
19 (4/16/14)
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)
Private Company Valuation: A test Packet 2: 95-132

Closingt thoughts on relative valuation
Asset based valuation
Valuing private businesses
- The missing pieces
- Why motive matters
- Private to private transactions

Post class test and solution
Weekly Challenge # 8 Relative Valuation versus DCF valuation Weekly challenge
Solution

Valuation Tools Webcast #12: Multiples and Fundamentals - Analyzing relationships

When asked the value a company, relative to other companies, one of the biggest challenges you face is in assessing and analyzing the data. In this presentation, I looks at steps in analysis.
  1. Presentation
  2. Bank raw data
  3. Descriptive Statistics
20 (4/21/14)
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)
Private Company Valuation II: Test Packet 2: 133-End
Packet 3: 1- 5

Valuing an initial public offering (IPO)
- Valuation issues
- Pricing issues
VC to IPO valuation
Introduction to real options

Post class test and solution
Valuation of the week #10

Valuing an IPO (On hold until Alibaba prospectus is released)
- Alibaba: My blog post
- Alibaba: Prospectus
- Alibaba: IPO valuation

Google shared spreadsheet
21 (4/23/14)
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)
Real Options: Introduction Packet 3: 6-37
Options in investment analysis
- Tests for making a "real options" argument
- The option to delay
- A patent as an option
Post class test and solution
Weekly Challenge #9
Private company valuation
Review session for Quiz 3
Webcast
Review session for the second quiz
  1. Review presentation
  2. Past Quiz 3s
  3. Solution to Past Quiz 3s
Valuation Tools Webcast #13: Valuing Patents as Options
The exclusive rights to produce a product or provide a service can provide the owner with "optionality", allowing for a premium on top of a discounted cash flow value. In this webcast, I look at a simplified example.
  1. Presentation
  2. Spreadsheet

22 (4/28/14)
(Skip the first 31 minutes of the webcast. That is the quiz time)
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)

Take the third quiz and check out the solution as well as the distribution of grades for the class. Packet 3: 38-55
More on real options
- The option to expand
- The option to abandon
- Financial flexibility as an option
Post class test and solution
Valuation of the week #11

Valuing and revaluing Apple
- My blog post on Apple
- A valuation of Apple on April 22, 2014 (just before earnings report)
- A valuation of Apple on April 24, 2014 (just after earnings report)

Google shared spreadsheet
23 (4/30/14)
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)
Real Options II: Test Packet 3: 57-84

Valuing Financial Flexibility as an Option
Equity as a liquidaiton option
- Set up
- Implications for investors
- Extending to the real world
- Implications for distressed investing

Post class test and solution
Weekly Challenge #10
Patent valuation Weekly Challenge
Solution
Valuation Tools Webcast #14: Valuing Distressed Equity as an Option
With money-losing companies, with a lot of debt, equity takes on the characteristics of a call option (to liquidate the business). In this webcast, I look at the mechanics of applying this approach to a troubled company.
  1. Jet India Financials
  2. Jet DCF valuation
  3. Jet Option valuation
24 (5/5/14)
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)
Acquisition tests Packet 3: 85-122

Acquisition Valuation
- Common valuation errors
- Synergy & Control
- Ego & Value
- Improving the odds

Post class test and solution
25 (5/7/14)
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)
Audio Podcast (downloadable)
Value Enhancement: Test Packet 3: 123-144
Value enhancement
- Price versus Value Enhancement
- Ways of enhancing value
- The expected value of control
- Implications
Post class test and solution
Review session for Final
Webcast

Review session for the final exam

  1. Review presentation
  2. Past finals
  3. Solution to past finals
26 (5/12/14)
Webcast, streamed (need a good internet connection)
Video podcast (downloadable)

Audio Podcast (downloadable)
Project summaries (for entire class)

Closing presentation

Closing Presentation
- Dante meets DCF (Ten tests of valuation)
- Project findings