Hi professor, thanks for the video. I have a question about page 275- are we assuming that Con Ed’s ROE is equal to cost of equity? Can ROE be temporarily higher than cost of equity if the company has a strong moat? Similarly, can ROE be lower if the management is a bad steward of capital? If so, would you simply use a growth rate that doesn’t equal to retention x cost of equity, keeping all else in your equation the same? Thank you
I was wondering if you have the data sheet you used in one of your videos calculating debt ratios for various companies/sectors. It would be appreciated if you could link me to it in some way
Hello professor, First, I'd like to show my greatest gratitude for sharing these lectures here... I've got a question; Why do we always ignore the (Change in working capital) in our calculation of FCFF , (as mentioned-cases here, &Tesla valuation)
sir if you take revenue of 5th largest retail store had in the 2000s and project that the same revenue for the amazon in 2010 as the 5th largest retail store isn`t you taking a low value for revenue
Sir, what is meant by the notation Return on equity=Cost of equity in the upper right hand corner i.e why dont we use the actual RoE of the company then?
Hi Manish, it means that in steady state the company starts to earn its cost of capital as market forces drive its competitive advantage to zero. It's a safe assumption since most of the times excess returns/losses revert to the mean.
i still cant get over the fact , that he changes the cost of capital to find the present value. Shoudnt the discount rate reflects the current risk that the cashflows should be discounted? if i was to change the cost of capital in the future i would calculate the future fair value and then discount it back with the current cost of capital to arrive at present value
Read a white paper "A key factor in the DCF model coherency". You would not be able to reconcile the FCFF and FCFE approaches without varying your cost of equity.
When we're valuing businesses, I have always wrestled with Warren Buffett's refusal to use beta vs academia's and the finance industry's insistence on using it in estimating the cost of capital. Since price is not equal to value and beta is focused on the market value of a stock (price), would it be fair to say that perhaps beta should not used as part of the common yardstick?
I am sorry but this is a cop out for not doing valuation in the first place. Watch the session where I offer up to a dozen alternatives to betas, if you do not like price based measures of non-diversifiable risk, and each comes with a boat load of problems.
7:01 - Starting time
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Unlimited generosity...always fun and thought provoking ...grateful!
Stay well Professor!
Hi professor, thanks for the video. I have a question about page 275- are we assuming that Con Ed’s ROE is equal to cost of equity? Can ROE be temporarily higher than cost of equity if the company has a strong moat? Similarly, can ROE be lower if the management is a bad steward of capital? If so, would you simply use a growth rate that doesn’t equal to retention x cost of equity, keeping all else in your equation the same? Thank you
I was wondering if you have the data sheet you used in one of your videos calculating debt ratios for various companies/sectors. It would be appreciated if you could link me to it in some way
Hello professor,
First, I'd like to show my greatest gratitude for sharing these lectures here...
I've got a question; Why do we always ignore the (Change in working capital) in our calculation of FCFF , (as mentioned-cases here, &Tesla valuation)
Reinvestment includes everything that you put into the firm for future growth, including working capital, net cap ex, acquisitions, net R&D....
sir if you take revenue of 5th largest retail store had in the 2000s and project that the same revenue for the amazon in 2010 as the 5th largest retail store isn`t you taking a low value for revenue
Sir, what is meant by the notation Return on equity=Cost of equity in the upper right hand corner i.e why dont we use the actual RoE of the company then?
Hi Manish, it means that in steady state the company starts to earn its cost of capital as market forces drive its competitive advantage to zero. It's a safe assumption since most of the times excess returns/losses revert to the mean.
@@Михаил-д6х1з ..ok..got it..thank u so much
I love this professor
Professor, where I can find the spreadsheets that you mentioned? Thank you so much!
Might be here pages.stern.nyu.edu/~adamodar/New_Home_Page/spreadsh.htm
Priceless. Thank you
i still cant get over the fact , that he changes the cost of capital to find the present value. Shoudnt the discount rate reflects the current risk that the cashflows should be discounted? if i was to change the cost of capital in the future i would calculate the future fair value and then discount it back with the current cost of capital to arrive at present value
Read a white paper "A key factor in the DCF model coherency". You would not be able to reconcile the FCFF and FCFE approaches without varying your cost of equity.
And if I just can't create a story for my company I'm going to remember Warren Buffet's Too Hard pile.
When we're valuing businesses, I have always wrestled with Warren Buffett's refusal to use beta vs academia's and the finance industry's insistence on using it in estimating the cost of capital. Since price is not equal to value and beta is focused on the market value of a stock (price), would it be fair to say that perhaps beta should not used as part of the common yardstick?
I am sorry but this is a cop out for not doing valuation in the first place. Watch the session where I offer up to a dozen alternatives to betas, if you do not like price based measures of non-diversifiable risk, and each comes with a boat load of problems.
Sure thing. I'll look for that session. Thank you!
Here's the Musings on Markets link: aswathdamodaran.blogspot.com/2011/04/alternatives-to-capm-part-1-relative.html?m=1
It's just that the slope of the actual returns vs. beta is flat. It does not increase with beta.
I hate group work I always cause problems make others do all the work take all the credit.
Sir a big request can you analyse the past fraud financial cases which help us to find fraud
Enron
Rcom
kingfisher
Lehman brothers
It's called forensic accounting. I suggest you look for a good book on the subject as it's not really the subject of a valuations class.
In fact, he already recommended two books on forensic accounting a few lessons ago. "Financial Shennanigan" and "Accounting for Growth".