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BookcoverValuation: An Online Class

 


This is a course of 25 short webcasts (about 12-20 minutes apiece), designed both to capture what I do in my regular semester-long valuation class and to supplement my books on valuation. With each session, you can download slides for that session and a post-class test to go with it (and solutions). If you have my book, the relevant sections of the book are highlighted. The first part are the webcast related to the class and the second part are tools webcasts, designed to help you apply the concepts to real companies. The class webcasts are on YouTube and you will need to be online, to watch them. The in-practice webcasts are downloadable to your computer or device and can be watched at your convenience. I have also created a version of this class on iTunes U, and you can get to that class by clicking here.

Class Webcasts

 

Session Webcast

Short Description

Supplementary Material

Inv Valuation (3rd Edition)

1

Introduction to valuation

Lays out the rationale for doing valuation as well as the issues of bias, complexity and uncertainty that bedevil it.

1.     Slides

2.     Post-class test & solution

Preface, Chapter 1

2

Intrinsic Value- Foundations

Sets up the foundations of intrinsic valuation, with a contrast between valuing a business and valuing the equity in that business.

1.     Slides

2.     Post-class test & solution

Chapter 2

3

The Risk Free Rate

Sets up the requirements for a rate to be risk free and the estimation challenges in estimating that rate in different currencies.

1.     Slides

2.     Post-class test & solution

Chapter 7

4

The Equity Risk Premium

Contrasts different approaches for estimating equity risk premiums in mature markets and extends these approaches to emerging markets and then to individual companies.

1.     Slides

2.     Post-class test & solution

Chapter 7

5

Betas - Relative Risk Measures

Describes what a beta tries to measure and after critiquing the standard regression approach to beta estimation, I develop an approach for estimating betas for individual companies.

1.     Slides

2.     Post-class test & solution

Chapter 8

6

Costs of Debt & Capital

Defines debt and cost of debt and then uses those measures to arrive at the cost of capital for a company.

1.     Slides

2.     Post-class test & solution

Chapter 8

7

Estimating Cash Flows

Goes through the steps in estimating cash flows, from measuring earnings to computing reinvestment and then on to cash flows (to both the firm and to equity).

1.     Slides

2.     Post-class test & solution

Chapter 9,10

8

Estimating Growth

Looks at alternative approaches to estimating expected growth, including past growth and analyst estimates, as well as fundamental growth.

1.     Slides

2.     Post-class test & solution

Chapter 11

9

Terminal Value

It is the biggest number in any discounted cash flow valuation, and we look at simple rules that keep it in check.

1.     Slides

2.     Post-class test & solution

Chapter 12

10

Value Enhancement

Looks at the drivers of value and how management actions can alter the value of a firm, for better or worse.

1.     Slides

2.     Post-class test & solution

Chapter 31

11

Loose Ends in Valuation

To get from operating asset value to equity value, we have to deal with cash, cross holdings and other assets first, then net out debt.

1.     Slides

2.     Post-class test & solution

Chapter 16

12

Acquisition Ornaments: Synergy, Control & Complexity

Look at the value of control and synergy, oft used reasons for acquisitions, as well as the consequences of complexity for value.

1.     Slides

2.     Post-class test & solution

Chapter 25

13

Loose Ends in Valuation: Distress, Dilution & Illiquidity

Look at how best to incorporate the effects of distress, dilution and ill liquidity into the value per share for a company

1.     Slides

2.     Post-class test & solution

Chapter 22, 23

14

Relative Valuation - First Principles

Develop a four-step process for deconstructing, understanding and using multiples.

1.     Slides

2.     Post-class test & solution

Chapter 17

15

PE Ratios

Look at the determinants of PE ratios and how to use them in comparisons across time, markets and companies.

1.     Slides

2.     Post-class test & solution

Chapter 18

16

Other Earnings Multiples

Extend the discussion to look at operating earnings and EBITDA multiples and their determinants.

1.     Slides

2.     Post-class test & solution

Chapter 18

17

Book Value Multiples

Look at the variables that cause book value multiples (price to book and EV to Investment Capital) to vary across companies and time.

1.     Slides

2.     Post-class test & solution

Chapter 19

18

Revenue Multiples

Examine why companies trade at different multiples of revenues in different businesses and the determinants of these values.

1.     Slides

2.     Post-class test & solution

Chapter 20

19

Asset Based Valuation

Look at valuation approaches (accounting book value, sum of the parts) that value the assets of a business and aggregate up to value.

1.     Slides

2.     Post-class test & solution

 

20

Private Company Valuation

Examine the estimation challenges associated with valuing small or large privately-owned businesses.

1.     Slides

2.     Post-class test & solution

Chapter 24

21

The Essence of Real Options

Lay the foundations for viewing and valuing some assets as options and how it adds to their values

1.     Slides

2.     Post-class test & solution

Chapter 28

22

The Option to Delay (Valuing Patents & Undeveloped Reserves)

Use option pricing technology to value unexercised options and undeveloped natural resource reserves.

1.     Slides

2.     Post-class test & solution

Chapter 28

23

The Option to Expand & Abandon

Look at how the option to expand into new markets/products can add value to young growth companies and the option to abandon investment can create value for flexible companies.

1.     Slides

2.     Post-class test & solution

Chapter 29

24

Distressed Equity as an Option

Examine how equity in troubled firms with large debt burdens can behave like options, with implications for investing and corporate finance.

1.     Slides

2.     Post-class test & solution

Chapter 30

25

Closing Thoughts

Wrapping up valuation, with closing thoughts.

1.     Slides

2.     Post-class test & solution

Chapter 34

 

Valuation Tools

While it is nice to talk about the big picture of valuation , and I do, in my classes, it is the nuts and bolts issues that trip us up. In this section, I will be posting webcasts that can help you navigate some of these nuts and bolts questions.

Topic Description Webcast Supporting material
Getting data Before you can do valuations and process information, you have to first collect the information. In this webcast, I look at ways to get information on a company's filings, macro economic indicators and sector-wide data. Webcast
  1. SEC website
  2. SEC Live
  3. FRED (Federal Reserve)
From financial disclosures to value Much of the raw material (data) that we use for valuation comes from annual reports and financial filings. (10, 10Q). In this presentation, I lay out a template for extracting information from these filings, separating the stuff that matters from the stuff that does not, using P&G in September 2012 as an illustration.

Webcast

  1. Presentation
  2. P&G: 10K
  3. P&G: Valuation (Excel spreadsheet)
Creating a trailing 12-month financial statement When valuing a business, you want the most updated information you can find. But what if your most recent annual report or 10K is several months old? The solution is to create a trailing 12-month financial statement.

Webcast

  1. Apple: 10K
  2. Apple: 10Q
  3. Apple Trailing 12-month (spreadsheet)
Estimating an implied equity risk premium I have been a strong proponent of implied equity risk premiums, forward looking estimates that are extracted by looking at stock prices today and expected cash flows in the future. While I have an implied equity risk premium spreadsheet on my website, I try to get some of the mystery out of both the process and the inputs in this webcast. Webcast
  1. Presentation
  2. Spreadsheet
  3. S&P 500 on buybacks
  4. S&P 500 earnings
Leases and Debt Accounting standards allow companies to classify some leases as operating leases, primarily based upon the degree of ownership vested in the lessee. Operating lease expenses are treated as operating expenses, not financial expenses. The sensible thing to do is to convert lease commitments to debt. In the process, though, you have to redo your financial statements. Webcast
  1. Disney Annual Report
  2. Converting leases to debt (spreadsheet)
Capitalizing R&D R&D is the ultimate cap ex, if you define capital expenditures as investments designed to create benefits over many years. Accountants incorrectly treat R&D as operating expenses. The logical fix is to convert R&D from an operating to capital expenses, though this will also lead to a restatement of both the income statement and the balance sheet. Webcast
  1. Microsoft: 10K for 2012
  2. Microsoft: 10K for 2011
  3. Converting R&D to capital (spreadsheet)
ROIC and ROE: The "only" valuation numbers that matters The return on invested capital is more than an accounting number. If computed right, it measures what a firm is generating as a return on its existing projects and provides a key indicator (though not always a definitive one) of what it will generate on future investments. That, in turn, will determine how much value growth will add (or destroy) in the company. If you don't know this number for a company, your valuation has no moorings. Webcast Walmart 10K (2013)
Walmart 10K (2012)
Spreadsheet
Terminal Value Check 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) Webcast Sample DCF valuation
Terminal value analyzer
Employee Options When a company uses options to compensate employees or to pay suppliers, it saves itself cash that it would have used otherwise but it does "dilute" the value of the equity held by common stockholders. When valuing a company with a significant option overhang, the right thing to do is to value the options as options and subtract that value from the estimated value of equity, before dividing by the number of shares outstanding. Webcast Cisco 10K
Option spreadsheet

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. Webcast Blog post on topic
Presentation
Excel spreadsheet

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. Webcast
  1. Presentation
  2. Bank raw data
  3. Descriptive Statistics
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. Webcast
  1. Presentation
  2. Spreadsheet
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. Webcast
  1. Jet India Financials
  2. Jet DCF valuation
  3. Jet Option valuation