Session 8: Cost of Capital Wrap-up and First Steps on Cash flows

In this session, I complete my discussion of my global data update for 2017 by looking at pricing differences across countries and sectors. Specifically, I look at how PE ratios, PBV ratios, EV to EBITDA and EV to Sales vary across markets. Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/dataupdate10.pdfBlog Post: http://aswathdamodaran.blogspot.com/2017/03/january-2017-data-update-10-pricing-game.htmlData on Pricing by Country: http://www.stern.nyu.edu/~adamodar/pc/blog/CountryMultiples2017.xlsxData on Pricing by Sector: http://www.stern.nyu.edu/~adamodar/pc/blog/SectorMultiples2017.xlsx Learn more about your ad choices. Visit megaphone.fm/adchoices

A good company can be badly managed and a bad company can be well managed. To make things even more confusing, a bad company with inept management can be a good investment. If this all sounds like a riddle to you, try this webcast where I draw the distinction between a good company, a good management and a good investment.Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/goodbad.pdfBlog Post: http://aswathdamodaran.blogspot.com/2017/03/explaining-paradox-why-good-bad.html Learn more about your ad choices. Visit megaphone.fm/adchoices

This is not a video that I expect most of you to not watch, for many reasons. First, it is insanely long (more than 3 hours), breaking almost every rule in the online video rulebook. Second, everything that I say in this video, I have said before either in my classes or individual posts. That said, you may still find it useful because it consolidates all the arguments against three ideas that I have seen marketed relentlessly as counters to conventional business first principles, and shows how these concepts connect to each other. 1. Sustainability: It is the business buzzword of the moment, with sustainability centers funded around the idea and classes with it in the title. While I understand the push for sustainable living and a planet, I find the notion of corporate sustainability nonsensical, since corporations are legal entities that should go away, when their reason for existence disappears. 2. Stakeholder Wealth Maximization: Should a well run business consider the needs and interests of the many stakeholders in it (lenders, employees, customers, society)? Of course, but the idea that you can maximize all of their competing interests is an idea that only a law school professor will think is a good one.3. ESG: No business acronym has ever acquired as large a following as this one, and I have written and talked about the multiple ways in which it can go wrong. My description of ESG as a concept born in sanctimony, nurtured in hypocrisy and sold with sophistry summarizes how I feel about it.I use "Theocratic" to bind these bad ideas together because they have marketed with religious fervor, and the Ayatollahs of the space have used virtue (or their definitions of it) as a defense against arguments. The buy in by consultants (McKinsey, are you listening), academics (who have provided cover and manufactured research to back it up), fund managers (with fiduciary responsibilities) has been astonishing. If you are an ESG advocate, or worse still, actually work in the space, I hope that you do get a chance to watch the session. It may infuriate you, and you may disagree with my arguments, but I don't think you will find it boring.Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/TheoTrifecta.pdfPrevious blog posts:1. https://aswathdamodaran.blogspot.com/2019/08/from-shareholder-wealth-to-stakeholder.html2. https://aswathdamodaran.blogspot.com/2020/09/sounding-good-or-doing-good-skeptical.html3. https://aswathdamodaran.blogspot.com/2021/09/the-esg-movement-goodness-gravy-train.html4. https://aswathdamodaran.blogspot.com/2022/03/esgs-russia-test-moment-to-shine-or.html Learn more about your ad choices. Visit megaphone.fm/adchoices

(I apologize for the screen sharing snafu, which is about 12 minutes, between minutes 10 and 22 of the class, since you watch an awfully low res video of me in front of the classroom). In the session today, we started by doing a brief test on country risk premiums. We started with an assessment of historical equity risk premiums, and why they are not good predictors of future equity risk premiums, before embarking on a discussion of country risk and how to deal with it, and measure it. We also looked at company risk exposure to country risk, with my core argument being that a company’s exposure to country risk comes from where it dos business, not where it is incorporated:After a brief foray into lambda, a more composite way of measuring country risk, we spent the rest of the session talking about the dynamics of implied equity risk premiums and what makes them go up, down or stay unchanged. We then moved to cross market comparisons, first by comparing the ERP to bond default spreads, then bringing in real estate risk premiums and then extending the concept to comparing ERPs across countries. Finally, I made the argument that you should not stray too far from the current implied premium, when valuing individual companies, because doing so will make your end valuation a function of what you think about the market and the company. If you have strong views on the market being over valued or under valued, it is best to separate it from your company valuation. I am attaching the excel spreadsheet that I used to compute the implied ERP at the start of February 2023. Play with it when you get a chance. Post class test and solution attached. Until next time!Start of the class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/ImplPrem.pdfERP for February 2023: https://pages.stern.nyu.edu/~adamodar/pc/implprem/ERPFeb23.xlsxSlides: https://www.stern.nyu.edu/~adamodar/podcasts/valspr23/session5slides.pdfPost class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session5Atest.pdfPost class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session5Asoln.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices

Learn more about your ad choices. Visit megaphone.fm/adchoices