Aswath Damodaran
by Aswath Damodaran
I teach corporate finance, valuation and investment philosophies at the Stern School of Business at New York University. I have online versions of all three courses here, as well as other finance-related videos. 1. The Corporate Finance Online playlist has an introductory video and 36 sessions that cover all of corporate finance (at least as I see it). 2. The Valuation playlist has 25 sessions that cover valuation approaches, issues and questions. 3. The Investment Philosophies playlist has sessions that cover different investment philosophies. 4. The Accounting and Statistics playlists reflect my quirky and unorthodox introductions to two disciplines that are critical to my valuation and corporate finance classes. 5. The Blog Posts playlist has sessions that go wit my blog posts and reflect my standing as a dabbler, rather than expert, in all things finance-related. If you need the supporting material for any of the classes, check the links below. Links:
Episodes
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Session 24: Closing Dividend Books and Opening Valuation Act
In today's class, we put the closing touched on dividend policy analysis by going through the possess of estimating FCFE, the cash flow left over after capital expenditures, working capital needs and debt payments. In the second half of the class, we laid the foundations for valuing companies by...
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A 2022 Zomato Update: Price, Value and the Gap!
I valued Zomato a little over a year ago (on July 21), ahead of its IPO, and estimated a value of ₹41 per share. The market, as it almost does, had other ideas and the stock, which had an offering price of ₹74, soared 51% on the first day of trading and stayed at stratospheric levels for much of...
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Sow the wind, Reap the whirlwind: An Inflation Update (September 23, 2022)
Inflation has taken center stage, in markets, and in policy makers' minds, for much of 2022. For much of the year, the market has been trying to play catch up with inflation, with expectations running behind actual inflation, and prices adjusting, as a consequence. In this session, I pull…
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Uncertainty in Investing and Valuation: What if questions, Scenario Analysis and Simulations
Session on Uncertainty for the Motley FoolIt is natural to feel uncertain about your value estimates, once you are done valuing a company, and second guess yourself. In this session, I start with the basic Excel tools you can use to ask what if questions, but then quickly shift away from the...
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Session 23: FCFE, Dividends and Cash Balances
After the quiz, in a shortened class, we moved on to look at how much a company can afford to pay out as dividend. This measure, that I titled FCFE, is the cash left over after taxes, reinvestment needs and net debt payments. When a company pays out less than its FCFE, it is accumulating cash…
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Free Cash Flow: Back to Basics
In every market correction, investors discover old truths, and this one has been no different. Not only have you seen the conversation shift from scaling up to profitability, but from earnings to cash flows. Managers and investors are suddenly discovering the importance of free cash flow, but as…
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Facebook (Meta) Lesson 1: Corporate Governance - The What, Why and What now?
This has not been a good year for Facebook, as its stock price has plummeted, and its earnings report from last week precipitated a new round of selling and finger-pointing. In this session, I start by putting the news in the most recent earnings report in perspective, but use the reaction to the...
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Session 22: The Dividend Trade off - Good and Bad Reasons for Paying Dividends
We spent this session setting up the trade off on dividends, starting with the argument that Miller/Modigliani made that dividends don't matter (in a world where investors are taxed at the same rate on dividends & capital gains & stock issuance is costless) to the dividends are bad school (built…
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Facebook (Meta) Lesson 2: Accounting Inconsistencies and Consequences
In this session, I use Facebook's most recent (and disappointing) quarterly earnings report to talk about accounting inconsistencies in categorizing expenses (into operating, financing and capital) at firms, and how this mis-categorization affects their profitability, return and debt measures. I...
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Session 23: Real Options Introduction
In today's class, I did a quick introduction to real options, setting up the intuitive rationale for real options. We covered the basics of options, starting with why real options are so attractive to analysts and investors: they allow you to add a premium to your DCF value. The two building…
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Facebook (Meta) Lesson 3: Tell me a story!
A good valuation is a bridge between stories and numbers, and Facebook's story through much of the decade has been simple and compelling, built around billions of intense users who share data about themselves, with that data being used to deliver focused advertising. That story has delivered...
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Session 21: Debt Design and Dividend Basics
In this class, we looked at the design principles for debt. In particular, we noted the allure of matching up debt cash flows to asset cash flows: it reduces default risk and increases debt capacity. We then looked at the process of designing the perfect debt for your company, starting with the...
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A Return to Teaching: The Spring 2023 Edition
I define myself as a teacher, not a professor, an academic or a researcher, and there is nothing else that I would rather do. Every spring, ahead of teaching my classes at Stern, I invite people to come along for the ride. In spring 2023, I will be teaching valuation (identical classes to the…
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Session 22: Private Company Valuation - The Rest of the Story
In this session, we completed our discussion of private company valuation, starting with how to deal with illiquidity when valuing private businesses. We then looked at why the value of a private business will be higher to a public company or in an IPO and the special issues that arise from IPOs,...
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Session 20: From actual to optimal and designing debt (intuitive)
In this session,we looked at applying closure to the optimal debt ratio analysis by looking at how quickly you should move to the optimal and what actions to take (recap versus taking projects), drawing largely on numbers that we have estimated already for the company (Jensen's alpha, ROC - Cost…
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Data Update 2 for 2023: A Rocky Year for Equities!
In this session, I first look back at equities in 2022, focusing on the S&P 500 and put the year (and its negative returns) in historical perspective. I then move on to looking at how the year's price movement has affected expected returns on stocks, where a combination of rising riskfree rates…
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Session 21: Closing up pricing, asset based valuation and private company valuation
In this session, 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...
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Session 1: Valuation 101 - Broad Themes and Class Logistics
In this session, I started by laying out the broad themes for the class - that valuation is a craft, that value is different from price, that a good valuation links story to numbers and that acting on valuation requires faith. I followed up by setting up the logistics of the class, including the...
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Session 19: Financing Mix - The Rest of the Story
In today’s class, we continued our discussion of the cost of capital approach to optimizing debt ratios by first looking at enhancements to the approach and then at the determinants of the optimal. In particular, it was differences in tax rates, cash flows (as a percent of value) and risk that...
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Session 2: First Steps on Valuation - Bias and the Bermuda Triangle
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...
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Session 20: Pricing young companies and across the market
In this class, we extended our discussion of pricing by looking at how to use pricing to analyze young companies, where multiples are often difficult to apply. We then extended the analysis of pricing by looking at entire markets. In the process, we looked at how multiple regressions can be used...
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Revisiting Tesla in January 2023: The Great Unraveling or a Return to Normalcy?
I have valued Tesla multiple times over the last decade, but my most recent valuation of the company was in November 2021, just as it's market cap crested $1 trillion and the stock was trading at $1200+ a share ($400 in current share count terms). I valued the company at about $576/share, and…
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Session 18: Cost of Capital as Financing Mix Optimizer
In this class, we continued our discussion of the cost of capital approach to deriving an optimal financing mix: the optimal one is the debt ratio that minimizes the cost of capital. To estimate the cost of capital at different debt ratios, we estimated the levered beta/ cost of equity at each…
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Session 1: Class Logistics, Mission and Themes
In this session, I laid out the structure for the class and an agenda of what I hope to accomplish during the next 15 weeks. In addition to describing the logistical details, I presented my view that corporate finance is the ultimate big picture class because everything falls under its purview.…
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Session 19: More on Pricing
In this session, we extended the discussion of the analysis of multiples by looking at PEG ratios, EV multiples and book value multiples. Each multiple, we argued, has a driver and companion variable.We then moved on to application and how best to find comparable firms and control for…
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Data Update 3 for 2023: Interest Rates and Bond Returns in 2022
If 2022 was a bad year for stocks, and it was, it was an even worse year for bond investors. On US treasury bonds, a traditional safe investment, the rise in T.Bond rates translates into double digit drops in prices, with the ten-year T.Bond registering at -17.83% return, the worse year in the...
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Session 17: The Miller Modigliani Theorem and Financing Hierarchies
In the shortened session that followed the quiz, I look at the Miller Modigliani theorem through the prism of the debt tradeoff. I then move on to looking at how the cost of capital can be used to optimize the right mix of debt and equity. We will continue with this discussion next week. Until…
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Session 2: The Bermuda Triangle and Approaches to Valuation
Bringing in the effects of uncertainty and complexity, I argued that these three (bias, uncertainty and complexity) forces are the biggest challenges to good valuation.We then moved on to talk about the three basic approaches to valuation: discounted cash flow valuation, where you estimate the...
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Dissent and Debate: Pushback on my Tesla Valuation!
Last week, I valued Tesla and arrived at an estimate of value, which at $130 was fairly close to the price then, but looks distant as the stock has run up in the week since. I expected that I would hear back from people who disagreed with me, and I did, on both sides. That disagreement not only...
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India Rising hits a Roadblock: The Short Selling Threat to the Adani Group!
The India Rising Story hit a road block last week, when Hindenburg Research, a short seller, labeled the Adani Group, one of India's largest, fastest-rising and most politically connected family groups, as the "largest con" in corporate history. I have no financial or emotional investment in the...
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Valeant: Damaged Goods or Deeply Discounted Drug Company?
I first valued Valeant in November 2015, after its fall from grace, and concluded that it was not a good investment then, but I did return to it in April 2016 and November 2016, and each time, found it under valued & bought the stock. In March 2017, my investment in the stock has lost 50% of its...
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Data 2017 Update 10: The Pricing Game
In this session, I complete my discussion of my global data update for 2017 by looking at pricing differences across countries and sectors. Specifically, I look at how PE ratios, PBV ratios, EV to EBITDA and EV to Sales vary across markets. Slides:...
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Good Companies, Good Managers, Good Investments: Deciphering the Divide
A good company can be badly managed and a bad company can be well managed. To make things even more confusing, a bad company with inept management can be a good investment. If this all sounds like a riddle to you, try this webcast where I draw the distinction between a good company, a good...
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The Theocratic Trifecta: The Allure and False Promise of ESG, Sustainability and Stakeholder Wealth
This is not a video that I expect most of you to not watch, for many reasons. First, it is insanely long (more than 3 hours), breaking almost every rule in the online video rulebook. Second, everything that I say in this video, I have said before either in my classes or individual posts. That…
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Session 5: Equity Risk Premiums
(I apologize for the screen sharing snafu, which is about 12 minutes, between minutes 10 and 22 of the class, since you watch an awfully low res video of me in front of the classroom). In the session today, we started by doing a brief test on country risk premiums. We started with an assessment…
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Session 11: Terminal Value and First Steps on Loose Ends
In this class we began by looking at the four rules that keep terminal value in check. We then looked at which model to use in valuing a company and then moved on to the loose ends in valuation, items we often pay little heed to or attach arbitrary premiums/discounts for. We began by looking at...
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Session 6: Risk, Riskfree Rates and Equity Risk Premiums (a start)
We started this class by tying up the last loose ends with risk and return models, talking about how assuming that there are no transactions costs and private information can lead us all to hold the market portfolio, and how risk can be then measured as risk added to that portfolio. We did damn…
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Session 9: Bottom Up Betas
This session is a grind with numbers building on top of numbers. In specific, we looked at how to estimate the beta for not only a company but its individual businesses by building up to a beta, rather than trusting a single regression. With Disney, we estimated a beta for each of the five...
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Session 6: Betas and Beyond
In this session, after a brief mop-up on why it is dangerous to deviate too much from the implied ERP, we talked about betas. In particular, we noted that estimating a beta by running a regression against a market index can yield junk, and we talked about alternatives. Some of these alternatives...
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Session 10: Top Down Growth
The first 30 minutes of this session was a quiz. We then continued our discussion of growth by the fundamentals that drive growth. In particular, we looked at how much efficiency can add to growth and how to estimate growth in companies with negative earningsSlides:...
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Session 8: Cost of Capital Wrap-up and First Steps on Cash flows
Intros class, we started debt ratios for companies and how to deal with hybrid securities.. If you are interested in getting updated default spreads (on the cheap or free), try the Federal Reserve site in St. Louis:https://fred.stlouisfed.orgThese are spreads on indices created by rating, updated...
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Session 8: The Determinants of Betas
We spent most of this class talking about the determinants of betas. Before we do that, though, there is one point worth emphasizing. Betas measure only non-diversifiable or market risk and not total risk (explaining why Harmony can have a negative beta and Philip Morris a very low beta).1. Betas...
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Data Update 5 for 2023: Profitability, Returns and Value
One of the lessons relearned in 2022 was that the end game of any business, no matter what its potential and how many users it has, is to make money. In this session, I draw a distinction between different profit measures from gross to operating to net profit, and how the test of making money…
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Session 7: The Beta Regression
This class covered the conventional approach to estimating betas, which is to run a regression of returns on a stock against returns on the market index. We first covered the estimation choices: how far back in time to go (depends on how much your company has changed), what return interval to use...
About this show
I teach corporate finance, valuation and investment philosophies at the Stern School of Business at New York University. I have online versions of all three courses here, as well as other finance-related videos. 1. The Corporate Finance Online playlist has an introductory video and 36 sessions that cover all of corporate finance (at least as I see it). 2. The Valuation playlist has 25 sessions that cover valuation approaches, issues and questions. 3. The Investment Philosophies playlist has sessions that cover different investment philosophies. 4. The Accounting and Statistics playlists reflect my quirky and unorthodox introductions to two disciplines that are critical to my valuation and corporate finance classes. 5. The Blog Posts playlist has sessions that go wit my blog posts and reflect my standing as a dabbler, rather than expert, in all things finance-related. If you need the supporting material for any of the classes, check the links below.
Links:
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