Really nice video, the explanation is amazing. quick question: In university I've learned two different types of WACC. One where the tax shield is included and one without it. When calculating the FCF via the NOPAT we used the WACC with the tax shield to discount and when calculating from the EBI we used the WACC without the tax shield. How do we know in this example which WACC to use? or am I missing something else? thanks in advance
thanks for the amazing video, one question, why do we assume that Beta Debt = 0? In my opinion that dosn't make sense if we assume that companies with a higher D/E ratio correlate stronger with the marked portfolio - best regards Ferdy
Hi Ferdy, thanks for your comment. I see where you are coming from :) Let me try to make this clear: we assume that debt has a beta of zero, as debt securities in terms of their price fluctuations do not really correlate much with general market factors as illustrated by a broad market index such as the S&P500. Equities typically do, which is why they have beta of more than zero. Your confusion comes from the distinction between unlevered and levered beta. If a company is in a cyclical industry (one that is highly sensitive to market factors), say construction, it will have a high beta, even if it is financed with equity ONLY. However, if such a business is also to some extent funded by debt, i.e. it is lever, its equity beta (the sensitivity experienced by its shareholders) will be higher due to the presence of debt. Debt introduces an element of fixed cost which makes earnings, cash flows and, as a result, the share price - more volatile. In other words, adding debt will always make the beta associated with a company's shares higher than what it would be if the business were unlevered. Debt makes the share pice more volatile. However, this does not mean that the performance of debt itself is volatile. Debt investors enjoy a smooth ride ... at the expense of shareholders who take the resulting volatility hit. Hope this helps!
It’s crazy how this channel is so underrated
Thanks Pietro … spread the word please, so that we can do more🙏
Exactly
I couldn't agree more. And the production quality is up there. Good job sir!
Thank you so much sir, watched both the videos and the concept for levering and delivering beta is crystal clear for me now. Appreciate your efforts!
I am very happy to hear this. Thank you for reaching out🙏
The best! What a great example
Thank you!
Man you're the best, you could sell anything! ✨
:) Thanks
thank for your work ❤❤❤
Really nice video, the explanation is amazing. quick question: In university I've learned two different types of WACC. One where the tax shield is included and one without it. When calculating the FCF via the NOPAT we used the WACC with the tax shield to discount and when calculating from the EBI we used the WACC without the tax shield. How do we know in this example which WACC to use? or am I missing something else? thanks in advance
thanks for the amazing video, one question, why do we assume that Beta Debt = 0? In my opinion that dosn't make sense if we assume that companies with a higher D/E ratio correlate stronger with the marked portfolio - best regards Ferdy
Hi Ferdy, thanks for your comment. I see where you are coming from :) Let me try to make this clear: we assume that debt has a beta of zero, as debt securities in terms of their price fluctuations do not really correlate much with general market factors as illustrated by a broad market index such as the S&P500. Equities typically do, which is why they have beta of more than zero.
Your confusion comes from the distinction between unlevered and levered beta. If a company is in a cyclical industry (one that is highly sensitive to market factors), say construction, it will have a high beta, even if it is financed with equity ONLY. However, if such a business is also to some extent funded by debt, i.e. it is lever, its equity beta (the sensitivity experienced by its shareholders) will be higher due to the presence of debt. Debt introduces an element of fixed cost which makes earnings, cash flows and, as a result, the share price - more volatile.
In other words, adding debt will always make the beta associated with a company's shares higher than what it would be if the business were unlevered. Debt makes the share pice more volatile. However, this does not mean that the performance of debt itself is volatile. Debt investors enjoy a smooth ride ... at the expense of shareholders who take the resulting volatility hit.
Hope this helps!
Thank you!
You are very welcome
📈🧠💪
Thank you!
Is it just me that is super impressed that this guy can write backwards?? or am I seeing some computer magic going on here
:) I write normally but flip the image in post-production (using software)