In this class, we looked at valuation as the place where all of the pieces of corporate finance come together – the end game for your investment, financing and dividend decisions. After drawing a contrast between valuation and pricing, we looked at the four drivers of value: cash flows, growth rates, discount rates and when your company will be a stable growth company. We then looked at how these numbers can be different depending on whether you take an equity or firm perspective to valuation and what causes these numbers to change. In particular, while no one can lay claim on the “right” value, we still need to be internally consistent with our assumptions. High growth generally will be accompanied by high reinvestment and high risk, and as companies mature, their growth and reinvestment characteristics should change. Ultimately, though, the best way to learn valuation is by playing with the numbers and seeing how value changes. I did talk about the presence of uncertainty and how it affects how you approach the numbers and if you are interested, you may find my blog post relevant for that discussion:
I also mentioned a valuation of Deutsche Bank. On the off chance that you want to dig deeper, here is my take on Deutsche in October 2016:
Finally, I did mention a spreadsheet that is versatile enough to cover every company in this class. Please use it for your valuation:
Many of the inputs that you need for this spreadsheet should have already have been estimated or looked up for other parts of the project. Also, as you enter the key numbers for revenue growth, target operating margin and sales/invested capital, think of the story that drives these numbers.
Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session24test.pdf
Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session24soln.pdf