valuation: setting the table - new york...
TRANSCRIPT
VALUATION:SETTINGTHETABLE
AswathDamodaran
2
GeneralInformation
¨ Office:Room9-69¨ E-mail:[email protected]¨ HomePage:http://www.damodaran.com¨ OfficeHours
¤ Monday 9.45-10.20,12-12.30¤ Wednesday 9.45-10.20,12-12.30¤ The“fairgame”principlestillapplies
¨ Theteachingassistants/fellowsforthisclassare1. JonathanFreed,[email protected]. DavidKlaber,[email protected]. MichaelXu,[email protected]
3
Theme1:CharacterizingValuationasadiscipline
¨ Inascience,ifyougettheinputsright,youshouldgettheoutputright.Thelawsofphysicsandmathematicsareuniversalandtherearenoexceptions.Valuationisnotascience.
¨ Inanart,thereareelementsthatcanbetaughtbutthereisalsoamagicthatyoueitherhaveoryoudonot.Theessenceofanartisthatyouareeitheragreatartistoryouarenot.Valuationisnotanart.
¨ Acraftisaskillthatyoulearnbydoing.Themoreyoudoit,thebetteryougetatit.Valuationisacraft.
4
Theme2:Valuationissimple&universal
Value Enhacement- Management- Activist Investors
Acquisitions- Synergy- Control
Every asset has a value. We just have to find it.
Perspectives on value
Chan
ging
Val
ue
Ways of Applying Value
Ways of thinking about/estimating valueIntrinsic ValueThe value of an asset is the present value of the expected cashflows
Relative Value/ PricingThe value of an asset is what others are willing to pay for it (or something like it)
Contingent ValueThe value of an asset may be contingent on what happens to other assets
Valuing publicly traded firms- Small vs Large- Developed vs Emerging- Manufacturing vs Technology
And private businesses- For owners- And investors(private equity, venture capital, IPO)
Across the life cycle- Young firms- IPOs- Mature firms- Declining firms
In sickness and in health
- Survival Risk- Distress Risk
- Nationalization Risk
Investors- Small vs Large- Short term vs Long term- Individual vs Instiutional- Insider vs Outsider
Analysts- Buy Side vs Sell Side
Accountants
Regulators/ Government
5
Theme3:Valuinganassetisnotthesameaspricingthatasset
PRICEValue
Price
THE GAPIs there one?
If so, will it close?If it will close, what will
cause it to close?
Drivers of intrinsic value- Cashflows from existing assets- Growth in cash flows- Quality of Growth
Drivers of price- Market moods & momentum- Surface stories about fundamentals
INTRINSIC VALUE
Accounting Estimates
Valuation Estimates
6
Theme4:Goodvaluation=Story+Numbers
7
Theme5:Ifyouvaluesomething,youshouldbewillingtoactonit..
¨ Whatvaluationtheory?ThereisverylittletheoryinvaluationandIamnotsurewhatanacademicvaluationwouldlikelikeandamnotsurethatIwanttofindout.
¨ Pragmatism,notpurity:Theendgameistoestimateavalueforanasset.Iplantogetthere,evenifitmeanstakingshortcutsandmakingassumptionsthatwouldmakepuristsblanch.
¨ Doyoubelieve?Toactonyourvaluations,youhavetohavefaithin¤ Inyourownvaluationjudgments.¤ Inmarkets:thatpriceswillmovetowardsyourvalueestimates.Thatfaithwillhavetobeearned.
8
CourseOutline
The Big Picture
Intrinsic Value: Inputs and Process- Risk Free Rates, Risk Premiums and Discount Rates- Earnings and Cash Flows- Growth and its value- Terminal Value
Sessions 1 -2
Sessions 3-12
Intrinsic Value: Examples- Narrative and Numbers- Valuation Examples- The Dark Side of Valuation- Value and Price
Sessions 12-15
Relative Valuation (Pricing)- The Pricing Process- Standardized Prices (Multiples)- "Comparables"- Doing Pricing Right
Sessions 16-19
Asset-Based Valuation- Liquidation Valuation- Sum-of-the-parts Valuation
Session 20
Real Option Valuation- The Basis- The Option to Delay (Patents, Reserves)- The Option to Expand ("Strategic")- The Option to Abandon (Flexibility)
Session 21-23
Acquisition ValuationValue Enhancement
Session 24
Session 25The Grand FinaleSession 26
9
Pre-seasonprep!Gettingreadyfortheclass
¨ Accounting:Therawmaterialyouneedtovalueacompanycomesprimarilyfromaccountingstatements.Understandinghowtoreadafinancialstatementandwheretofindtheinformationneediscritical.¤ Myprimer:
http://people.stern.nyu.edu/adamodar/New_Home_Page/AccPrimer/accstate.htm¨ Statistics:Statisticsisdesignedtohelpusmakesenseofdatathatislarge
andcontradictory.Thatisexactlytheproblemwefaceinvaluation.¤ Myprimer:
http://people.stern.nyu.edu/adamodar/New_Home_Page/StatFile/statistics.htm¨ Finance:Therearetoolsthatwedrawoninvaluationextensively.
¤ Riskandreturnmodels:http://www.stern.nyu.edu/~adamodar/pdfiles/acf3E/ch3.pdf
¤ Presentvalue:http://people.stern.nyu.edu/adamodar/New_Home_Page/PVPrimer/pvprimer.htm
¤ Corporatefinance:http://people.stern.nyu.edu/adamodar/New_Home_Page/triumdesc.html
10
Classstructure
Monday- Class
Tuesday- Valuationoftheweekemail
Wednesday- Class- Weeklychallengesentout
Thursday- Projectupdateemail
FridayTopicalwebcast
Saturday- WeeklyNewsletter
Sunday- Weeklychallengedue&solutionposted
11
Foreachclass,pleasetryto..
¨ Be here and please be on time: Each class will start with a pre-classtest (which will lay the basis for the class but will not be graded) inthe first 5 minutes.
¨ Bring your lecture note packet with you: These are available inthree parts. They can be bought at the book store or downloadedfrom my web site by going to:http://www.stern.nyu.edu/~adamodar/New_Home_Page/eqlect.html
¨ If you do miss a class, catch up: All classes will be web cast. Theweb casts will be online (usually) within a couple of hours of theclass. The webcasts are available in four formats:¤ asastream(withahigh-speedinternetconnection)¤ asaYouTubevideo(ifyouhavealower-speedconnectionorsmallscreen
device)¤ asadownloadablevideofile(foracomputer,atabletorasmartphone)¤ asadownloadableaudiofile.
12
Nicetohave,butyoucanlivewithoutthem…
¨ Books:Ihaveafewbooksonvaluationandtheytendtosaymuchthesamethings,albeitindifferentformats.Youdon’tneedanyofthembutifyoucangetone,itwon’thurt.¤ InvestmentValuation(3rdedition):isthebookthatismostsuitedforaclassroomtextbook.Itfollowsthe
standardscriptofvaluation,lookingatdifferentvaluationmodelswithtwists.Italsofollowstextbookformat(withproblemsattheendofeachchapter)
¤ DamodaranonValuation(2ndedition):providesaquickerreviewofthebasicvaluationbutthesecondhalfofthebookisbuiltarounddealingwithwhatIcallthelooseendsofvaluationandisreallymeantforpractitionerswhodealwiththelooseendsonaconstantbasis.
¤ TheDarkSideofValuation(2ndedition):coverscompaniesthataredifficulttovalue– youngcompanies,moneylosingcompanies,financialservicecompanies,emergingmarketcompanies.
¤ TheLittleBookofValuation:Ifyoutruly,trulyhatetoreadandarebudgetconstrained,thinkofthisastheCliffnotesversionofmylongerbooks.
¤ NarrativeandNumbers(Comingsoon):Thisisforstorytellerswhowanttodevelopsomedisciplineandnumbercruncherswhowanttobeimaginative.
¨ Apps:Ihaveavaluationapp(co-developedwithAnant Sundaram atDartmouth)fortheiPad andiPhonescalleduValue.Checkitout!iPad version:https://itunes.apple.com/us/app/uvalue/id440046276iPhoneversion:https://itunes.apple.com/us/app/uvalue-mobile/id492586911
13
Stayconnected!InformationCentral
¨ Websitefortheclass:Everythingassociatedwiththisclass(andImeaneverything)willbeavailableonthewebsitefortheclass:
n http://www.stern.nyu.edu/~adamodar/New_Home_Page/equity.htmlIwilltrytoalsokeepthematerialonNYUClasses,butIdon’tlikeclosedsystems.Enoughsaid!
¨ SocialMediasites(MyNYUClassesalternative):Ihavebeenexperimentingwithnewwaysofofferingthisclass.Thissemester,Iwillfindanewforumtopresentthisclass.Iwouldlovetogetyourfeedbackonhowitworks.Iwillpassiton.
¨ AppleiTunesU:TheclasswillalsobecarriedonAppleiTunesU.¤ IfyouhaveanAppledevice(aniPhoneoriPad),downloadtheiTunesUappfromtheiTunesstore
andthentypeinorclickonthelinkfortheclass.https://itunesu.itunes.apple.com/audit/COHYXVZ1GA0N1TYA
¤ IfyouhaveanAndroid(whatpossessedyoutocommitsuchamortalsin?),youcanwatchiTunesU,ifyouhavetheTunesviewer apponyourAndroid.Youcangetitbygoingto
http://sourceforge.net/projects/tunesviewer/¤ YouTubeChannel:Thereisafinaloption,ifyourbroadbandconnectionisnotthatgreatand
youarewatchingonaTablet/smartphone.ThereisaYouTubeplaylistforthisclass,whereallclasssessionswillbeloaded.https://www.youtube.com/playlist?playnext=1&list=PLUkh9m2BorqmSH1Y8QIYQ-0HnbWpHvBzfWhenyougetachance,checkitout.
14
More…Yes,thereismore…
¨ Googlecalendar:ThereisaGooglecalendarforthesitethatyoucanaccessbygoingto:http://bit.ly/2aTViyl
¨ Myblog:Mynot-so-brilliantandnot-very-insightfulthoughtsonvaluation,corporatefinanceandportfoliomanagementwillbepostedonmyblog,MusingsonMarkets.http://aswathdamodaran.blogspot.com/
¨ Twitterfeed:Justincaseyoudon’tgetenoughofmeinclass,onlineandfrommyblog,pleasehelpmeapproachLadyGagastatusbyjoiningmyTwitterfollowerlist(@AswathDamodaran).
¨ Otherreadings:Theotherreadingsforeachtopicareavailableonmywebsite,andcanbedownloadedat¤ http://www.stern.nyu.edu/~adamodar/New_Home_Page/eqread.htm
15
GradingDistribution…
16
GradingBasis
¨ GroupWork:Studentsshouldworkingroupsoffour(minimum)toseven(maximum).Eachgroupwillberequiredtoworkonagroupproject¤ ValuationProject Dueintwoparts 30%
n Part1:DCFValuationduebyNovember4at5pmn Part2:EntireprojectdueonDecember14at5p.m.
¤ MysteryProject:TBA 10%¨ IndividualWork:
¤ Quizzes:Therewillbethreequizzesworth10%apiece.Quiz1:DCFEstimationIssues:Session9 (October10)Quiz2:MoreDCF:Session17(November9)Quiz3:Relative&PrivateCovaluation:Session22(November30)
¤ FinalExam:Thiswillalsobeanopen-bookandopen-notescumulativeexamworth30%.ItisscheduledforFriday,December16,from1-3pm.
17
RecappingQuiz/ExamGroundRules
1. Quizzeswillbeonthedesignateddaysinthefirst30minutesoftheclass.2. Examswillbeopenbook,opennotes.Youcanbringinasmuchsupportingmaterialasyoucan
carry.3. Eachquizisworth10%.4. Ifyouhavetomissaquizforgoodreason,youwillhavetoletmeknow(byemail)atleast15
minutesbeforethequizthatyouwillbemissingthequiz.5. Ifyoumissaquizforgoodreason,the10%weightonthatquizwillbereallocatedacrossyour
remainingexams(quizzesandfinal).Youcannotweightpriorquizzesmore.6. Ifyoutakeallthreequizzes,thescoreonyourworstquizwillbepusheduptotheaveragescore
acrossallofyourotherexams(theothertwoquizzesandthefinalexam)(Note:Itwillnotbethrownout). Ifyoumissaquiz,youwillnothavethisoption,evenifyoumissthequizforgoodreason.
7. Youcanneverbeworseofffromtakingallthreequizzes.Atworst,yourtotalscorewillbeunaffected,butatbest,itwillimprove.
8. IgradeallofyourquizzesandIgivepartialcredit.So,pleaseshowallwork.Ifyouhaveabeefwiththegrading(andIdomakemistakes),pleasecometome
9. Youcannotuseyourlaptops onthequiz.10. YoucanuseyouriPads forreviewinglecturenotesbutnotasconnecteddevices.
18
RulesofEngagement
¨ Rulesofgroupwork:¤ Pickyourowngroups.(Ifyouhavetroublegettingpicked,Iwillhelp)¤ Allgroupworkwillbeselfpoliced,exceptinextremecircumstances.¤ Therewillbeonegradepergroup,nomatterhowtheworkloadis
distributedamongthegroupmembers¨ Rulesonindividualwork
¤ Allexamsandquizzesarestrictlyindividualwork.¤ Therewillbenomake-upquizzes.Ifyoumissaquizforagoodreason,the
gradewillberedistributedovertheremainingpartofthecourse.Ifyoutakeallthreequizzes,thescoreonyourworstquizwillberaisedtotheaveragescoreacrossallofyourotherexams(twoquizzesandthefinal).
¤ Iwillbethegrader,andIdomakemistakes.IfIscrewup,bringittomyattentionandIwillfixit.
¨ RulesonParticipation¤ Allparticipationiswelcome.