Session 2: The Structure of a Business

In this session, I introduce the notion of a financial balance sheet and the choices when it comes to funding. I then link this balance sheet to the idea of a corporate life cycle.
Slides: www.stern.nyu.edu/~adamodar/pd...
Post class test: www.stern.nyu.edu/~adamodar/pd...
Post class test solution: www.stern.nyu.edu/~adamodar/pd...

[@maddysydney]

Company age is such an important concept which I have heard only from you. Look at Kodak today! Can’t die gracefully 😀

[@pedromachado6198]

Hi damodaran I'm from Brazil and I have 14 years old, thank you for your lessons

[@ImmanuelR2]

I wish I was learning from him when I was 14! Good Luck!

[@Liang409]

Hey dude u r just so proactive and advanced on the learning track of finance! I wish I could have been exposed to the same knowledge and video lessons when I was 14. Good luck future star!

[@pandalanhukuk804]

@@Liang409 this world will be futuristic

[@osos718]

The life cycle model seems to be applicable to both company and industries, and combing that could make an interesting matrix (e.g. a young company in a mature growth industry)

[@ramjiYahoo]

wonderful presentation Sir, learnt how to view the Balance sheet from the eyes of Valuation professional

[@ryloric610]

Thanks for the lectures professor. I think there's a small type on the 'Growth Assets' slide at point 3.1, "...a business where you access to lots...", there's probably a 'have' missing between 'you' and 'access'.

[@rogerioluispimentaribeiro1240]

Brazil here aswell. Thanks for the lessons professor

[@Luizcarlos-vh6zr]

Br aqui tb kkk e nois

[@ostwest8224]

For assessing the value of the assets in place- How would assess whether their value has appreciated or deteriorated with respect to how we view them in future?

[@ronaldlam3217]

Hi Professor! Thank you for your lessons and videos! Can I ask a question please, for established airlines like United/Delta/Singapore airlines, would you consider them as mature growth or mature stable businesses? I'm uncertain about whether purchase of new aircrafts should be considered under assets in place or growth assets. Appreciate your thoughts on this. Thank you!

[@daanishdan318]

I think it will come down to number of routes and number of passengers.
If they are just replacing older aircrafts then, they are a mature stable. If they are expanding routes and getting more passengers then they are a growth firm.
Also, if they are making there existing fleet more energy efficient (better engines) than I still think they will be a stable firm with a one time boost to margin / cash flow.

[@raghavbinnani6473]

Loved the session

[@daanishdan318]

Hi Prof Damodaran,
Thanks for the lectures!
In Q1 Which of the following is the best way of estimating the value of asset in place?
Why do we not use the accounting book value to measure the value of assets in place.
Aren't the audit reports supposed to be an accurate estimate of the value of the assets?
I see the logic behind using "discounted cash flow valuation with no growth". I feel that is more of a guesstimate than an audit/accounting report.

[@anhkhoapo]

I think the logic behind that is you want to find the value that the assets bring to the owners of the company (in form of cashflow).
Using book value, we only arrive at the accounting value of the assets and not the value they bring to the owners.

[@extremecouponing91]

Amazing session thank you 😁

[@hroarke24]

Thank you for the lessons! Does Question 5 on the test have a mistake in the question? It's a repeat of Q4 and the answers seem to be created so that the Q was in reference to a Mature-Stable or Mature-Old Age type of company!

[@subanakeris]

I agree! I puzzled over my incorrect answer for far too long before arriving at this conclusion!

[@Darrenblake305]

just noticed the same thing !

[@nealsutaria227]

what is an example of growth assets?

[@bikalbasnet]

So Investing in a business is like investing in a farmer's share of the crop (Business). Some of those crops die early or do not produce enough during harvest but some of them do. So investing in a business is like investing in a good crops and the value of those crops depends on the life cycle they are at.

[@onijuwonlo]

How do i go about the download of the slides?

[@extremecouponing91]

I don't know if it's a problem on my end but for some reason I'm unable to download the slides 😔

[@giovanegoffiandreucci3502]

so rich content

[@anshc838]

Why do mature businesses fail to accumulate growth assets?

[@jujijiju6929]

A financial balance sheet wouldn't necessarily balance, would it? If it balances then the business itself would've been in vain, you put in money and reaped nothing in return.
The assets side is valued at what the "Assets in place" are worth now + What we can estimate the value of growth assets to be. The liabilities are valued at the cash taken in, some of it in return for fixed cash flows (debt) and some of it in return for residual cash flows (equity). These two numbers do not have to match, and if they do match you've put in money into a business and you got back assets worth exactly that, which would make the business pointless since the goal is to make a return.Maybe we should call this just "financial sheet" or something, cause it doesn't have to balance.
Am I crazy? I've been obsessing over this for a few hours and I'm still not sure.

[@sagargarodhara]

for this You need to understand accounting first

[@serenemary873]

8:43

[@shaljo]

This made nooooo sense! 😢 aarrgh