00:52 the essence of intrinsic valuation: (1) cash flow (2) growth (3) risk 01:09 discount of cash flow valuation ≠intrinsic valuation 01:18 intrinsic valuation is designed for "cash flow generating" assets. [can value a start-up company. cant value an art piece] 01:54 intro of "discount of cash flow valuation": (1) present value of the expected cash flow on that asset 02:32 2 ways to set up a "discount of cash flow valuation": (1) expected cash flows, look at all possible(good or bad) outcomes. the "discount rate" is how you adjust the risks, higher "risks" with higher "discount rates" than save the assets. 03:08 adjust the "discount rate" or adjust the "cash flow" for risk 03:26 risk-averse for "certainty (risk-free) income 04:31 for a company to have value, its cash flows have to have value at "some point in time". 07:07 value either the Equity of the business or the entire business 07:54 the value of equity(cost of equity) = cash flow to equity discounted back at that rate of return 09:53 2 ways to value equity: (1) value equity directly by taking cash flow to equity & discounting at the cost of equity (2) value equity indirectly by valuing the business and subtracting out debt 10:13 first principles in valuation: never mix and match cash flow don't discount cash flow to equity the cost of capital don't discount cash flow of business at the cost of equity. make sure your cash flow & discount rate are matched up. 10:52 intrinsic valuation = valuing companies based on their specific characteristics 10:59 discounted cash flow valuation = a tool to estimate intrinsic value, need to estimate expected cash flow & adjust the risk (either by replacing the expected cash flow with certainty equivalents/ or adjust the discounted rate for risk) 11:12 have to make a choice: (1) valuing the E (2) valuing the entire business that choice will govern how you estimate the CF & discount rate you use.
blessed to learn from valuation god himself . he could sell this knowledge at very high price but his purpose was so clear . he just want everyone to learn and grow in life , I don't know that people like you exist . I just love every lecture you posted . you are the best teacher who can teach even someone who teaches valuation himself .
Omg! What did I just stumble upon? I’ve been learning how to read and study annual reports and financials, when I stumbled upon this. Thank you so much sir. I can’t believe this is on CZcams for everybody.
Can you tell me this type of several channel where I can learn finance modeling and research report making. Right now I am in second year of college gupta ji. I wanna be investment banker if you you can give me your telegram (optional) that is more appreciated...
This is of immense value (no pun intended)!!! Thank you very much for sharing these amazing series and helping everyone become a better investor professor!
Just wondering why some people did dislike this amazing tutorial? They should have posted constructive comments if there is something they want to add or discount.
sir, i don't have much finance background but i want to do valuations for my ideas. can you guide me what else should i study? i have engineering background.
*Thank you for this gift. The series is phenomenal and best of all accessible. I have picked up 4 or your books but haven't gotten around to reading them. I will be doing that very soon. But for now thank you for this.*
@@anvesh87 1. Investment Valuation: Tools and Techniques for Determining the Value of Any Asset 2. Investment Philosophies: Successful Strategies and the Investors who made them Work 3. The Dark Side of Valuation: Valuing Young, Distressed and Complex Businesses by Aswath Damodaran
Thank you for the sharing. May I know the difference of assumption needed to be made when calculating COST OF EQUITY using (a) CAPM model, (b) Dividend growth model and (c) Equity payout method (e.g. dividends - share issued + treasury purchased)? And I am curious since these 3 methods always lead to different answers, which method the best to apply or need to depend to the circumstances?
Hi Aswath, I am coming from zero background in finance. I liked your google talk so i wanted to learn more in detail. But In this lecture you directly jumped into discounted cashflow and start using technical term like expected value and risk-free. I understand you want to be complete in your statement, but I would appreciate if you can make a lecture series for more common people like me explaining or removing the complexity of these terms. Like those talks at Google. Since i know some maths, i understand that expected value means mean value, but i couldnt understand the risk - what exactly it is. Its hard to wrap my head around it. Please consider making video which is easy to consume. I am writing this because i believe you are a good teacher. Big Fan!
Dear sir i understand DCF is one of the tools available to arrive at intrinsic value can you suggest few more tools available under intrinsic valuation approach. Further we arrive book value per share based on Net asset value method under which valuation approach it will be covered. Since Intrinsic approach is based on cash flows and relatives approach based on comparable. Kindly advice
I like the way u are making these broad terms simple and understandable. I want you to make videos on financial modelling too, it will be easy for us to gain knowledge.
Sir I'm very interesting to know about Valuation sir from where I have to start my journey what is the first Step lecture I would start , Can i go for this whole lecture sries
I have this question, if anyone could reply the solution you are great! When we discount the cash flow to the firm at the cost of equity we should get an upward biased estimate right? Like then we are only subtracting what the equity investors demand not including debt payments... from a huge amount like cash flow to business. Similarly When we discount the cash flow to the equity at the cost of capital we should get an downward biased estimate right? Like then we are subtracting what the equity investors demand and debt payments... from a small amount like cash flow to equity which is already have debt subtracted off? Is it something to do with the equation? Like the denominator side is greater or smaller because we sqaure it? [E(CFn)/(1+r)^n]
Will someone help me with this? According to sir, when we sit for estimating the cash flows (2:32 min), you take all possible considerations in your estimation, the good and the the bad ones. Once i have a list of estimated cashflows, i take an expected value of these cashflows(assuming it to be an average of all estimates for each year). If we take an average of all good and bad cashflows, wont the cashlfows be risk adjusted, cause now they show the bad possibility also? Which is am assuming is my risk.
While considering good and bad scenarios, you still have risk factor associated with your cashflows. Say, in your case, you are averaging out cashflows for all years, each year has its risk factor associated with it and you are not cancelling that out.
Professor Damodaran I am facing a problem with finding data related to risk free rate and equity risk premium(ERP) and relative risk or beta I am form india and I'm trying to value the finance stock (bajaj finance) Please sir try to help me to find this data and how i can find internsic value of finance stock or banking stock please sir Thanks Professor Damodaran sir
I'm confused why the discount rate is adjusting for risk if the cash flows are measured based on expected values? Shouldn't the expected value component of the cash flows already account for risk since the expected value includes the probability of both good and bad times? That is, the expected value is just the weighted average of cash flows across different future scenarios with the weights being equal to the probability of that scenario occurring. The only explanation I can think of is that the expected value is capturing more "systematic" or "macroeconomic" conditions, while the discount rate would be capturing more "firm-specific" risk, but I am not quite clear and was hoping you could explain the difference between the discount rate measuring risk and the expected value capturing different "risky" scenarios.
I think that’s why there’s two approaches: - You can use expected cash flows and adjust your discount rate. Because expected is based on hope and not certainty, expected cash flows still have some risk involved. - Or you can adjust your cash flows aiming to certainty and then use a risk-free rate as your discount rate.
Can anyone clear something up for me? If the equation calls for the cashflows to be divided by (1+r)^n, wouldn't that mean that the discount rate number would be absolutely massive in later time periods? I think it looks like a simple typo.
I'm a total noob on finance, but the formula for terminal value looks weird. Mathematically speaking, shouldn't the value of the assets equal to the sums of the geometric series? I don't understand how the terminal value is derived.
When I'm getting confused here, should I carry on to another session or beat this session to death until I understand completely? I think I will carry on.
i always thought DCF only works on stable companies...like Coca Cola etc...what about a fast grower which currently doesnt earn or generate much cashflow...like how could have you valued Amazon 20 years ago...for example..
As he said on the previous video, you can never get it right. A valuation is an estimate, and it will always be wrong. What you can and should try to do is getting it close enough most of the time
Why is expected value of the future cash flow not equivalent to the risk-free cash equivalent? What is the rationale behind it? Wouldn't there be an arbitrage if these two are not equal?
His voice is ASMR. There's just something about his cadence. I feel like I'm about to reach valuation nirvana just by listening to him.
Very soothing indeed!
True, hearing feels like seeing valuation from different glasses.
It’s the sound of your hands being turned to diamonds.
Become one with the gains ☸️☯️
Haha, couldn't relate more.
Love this guy’s face, voice, and sweater
Yeah, he's attuned everything perfectly to get his message across
I love the leather bracelets. Very neo-hippieish
@@elnetini Can i find this slides on his personal website??
00:52 the essence of intrinsic valuation: (1) cash flow (2) growth (3) risk
01:09 discount of cash flow valuation ≠intrinsic valuation
01:18 intrinsic valuation is designed for "cash flow generating" assets. [can value a start-up company. cant value an art piece]
01:54 intro of "discount of cash flow valuation": (1) present value of the expected cash flow on that asset
02:32 2 ways to set up a "discount of cash flow valuation": (1) expected cash flows, look at all possible(good or bad) outcomes. the "discount rate" is how you adjust the risks, higher "risks" with higher "discount rates" than save the assets.
03:08 adjust the "discount rate" or adjust the "cash flow" for risk
03:26 risk-averse for "certainty (risk-free) income
04:31 for a company to have value, its cash flows have to have value at "some point in time".
07:07 value either the Equity of the business or the entire business
07:54 the value of equity(cost of equity) = cash flow to equity discounted back at that rate of return
09:53 2 ways to value equity:
(1) value equity directly by taking cash flow to equity & discounting at the cost of equity
(2) value equity indirectly by valuing the business and subtracting out debt
10:13 first principles in valuation: never mix and match cash flow
don't discount cash flow to equity the cost of capital
don't discount cash flow of business at the cost of equity.
make sure your cash flow & discount rate are matched up.
10:52 intrinsic valuation = valuing companies based on their specific characteristics
10:59 discounted cash flow valuation = a tool to estimate intrinsic value, need to estimate expected cash flow & adjust the risk (either by replacing the expected cash flow with certainty equivalents/ or adjust the discounted rate for risk)
11:12 have to make a choice: (1) valuing the E (2) valuing the entire business
that choice will govern how you estimate the CF & discount rate you use.
P
thank you
thankyou
A great teacher is one that can take the most complex idea and explain it in the most simplest way. Thank you for the value you give us!
This man is the oogway of finance
The confidence in his voice is gorgeous. The way he says every word conveys certainty and you know he knows what he is saying "no gas".
How is this free?! I adore this man. He is my new sleeping music.
blessed to learn from valuation god himself . he could sell this knowledge at very high price but his purpose was so clear . he just want everyone to learn and grow in life , I don't know that people like you exist . I just love every lecture you posted . you are the best teacher who can teach even someone who teaches valuation himself .
Professor Damodaran makes me regret not going to NYU for my MBA
Setting aside the topic, this guy is an excellent teacher. He is no joke.
You are a gifted teacher!
This is just pure gold. So lucky to get my hands on this series.
These lessons are excellent. And free! Much appreciated.
Absolutely an incredible pedagogue, thank you for sharing this level of knowledge!
I appreciate your work and will to inspire others very much, thank you!
Wooowww.. Simplicity in the most complex topics. Damodaran sir did in 15 min what my prof couldn't in entire semester. Thank you sir.
Clear, simple, and to the point!
Your new messenger for the corporate world
Omg! What did I just stumble upon?
I’ve been learning how to read and study annual reports and financials, when I stumbled upon this. Thank you so much sir. I can’t believe this is on CZcams for everybody.
Can you tell me this type of several channel where I can learn finance modeling and research report making. Right now I am in second year of college gupta ji. I wanna be investment banker if you you can give me your telegram (optional) that is more appreciated...
Such beauty in teaching the concepts! Much like a story that you just want to keep listening to.
Absolutely clear explanation of something that is tough to understand.... Thanks Mr damodaran
This is such a great video. Complex topics that are purely simplified.
Anyone else need to watch the course 6x to grasp the concept? I do. Amazing we can have access to this great lecture for free!!
A great teacher....I learn a lot from him. Thank you sir.
Thanks for educating.
Thank you for making this valuable videos. I am grateful for it!
This is of immense value (no pun intended)!!! Thank you very much for sharing these amazing series and helping everyone become a better investor professor!
Just wondering why some people did dislike this amazing tutorial? They should have posted constructive comments if there is something they want to add or discount.
ITS A GIFT TO THE STUDENTS OF THE WORLD !!
what a great Professor... thanks Prof Damodaran..
A boon to an entire generation
Thank you damodaran sir
Excellent - very simple and clear explanation to the concepts.
sir, i don't have much finance background but i want to do valuations for my ideas. can you guide me what else should i study? i have engineering background.
@@khms1000 hey bro . Message me in insta I think I can help you . My insta handle - Pantanurag999
Dr. Damodoran you are amazing... Taking my FMVA certification from The CFI Institute and this is way better.
Hi Alexander. I wonder if you've taken financial modeling as a career, if yes, then how is it going for you?
This man keeps things simple but highly effective. Respect.
Correct
This is what a Master looks and speaks like.
Thank you , love your online session. Very clear.
Incredible delivery
Amazing brother great breakdown
*Thank you for this gift. The series is phenomenal and best of all accessible. I have picked up 4 or your books but haven't gotten around to reading them. I will be doing that very soon. But for now thank you for this.*
pls share book names
@@anvesh87
1. Investment Valuation: Tools and Techniques for Determining the Value of Any Asset
2. Investment Philosophies: Successful Strategies and the Investors who made them Work
3. The Dark Side of Valuation: Valuing Young, Distressed and Complex Businesses
by Aswath Damodaran
Thanks a lot Professor for sharing your videos here. Really helpful for global student community.
Krishna Kishore excellent......thanks a lot professor
Thank you for the sharing. May I know the difference of assumption needed to be made when calculating COST OF EQUITY using (a) CAPM model, (b) Dividend growth model and (c) Equity payout method (e.g. dividends - share issued + treasury purchased)?
And I am curious since these 3 methods always lead to different answers, which method the best to apply or need to depend to the circumstances?
Listening to this guy makes me feel smarter already
Hi Aswath, I am coming from zero background in finance. I liked your google talk so i wanted to learn more in detail. But In this lecture you directly jumped into discounted cashflow and start using technical term like expected value and risk-free.
I understand you want to be complete in your statement, but I would appreciate if you can make a lecture series for more common people like me explaining or removing the complexity of these terms. Like those talks at Google.
Since i know some maths, i understand that expected value means mean value, but i couldnt understand the risk - what exactly it is. Its hard to wrap my head around it.
Please consider making video which is easy to consume. I am writing this because i believe you are a good teacher. Big Fan!
One simplified way to look at risk is as the standard deviation of returns from the mean.
Soothing sound 💙
👍👍👍 Great Session....
YOU SHOULD HAVE 10 MN SUBS MAN SO GOOD
CAME HERE AFTER RACHNA RANADE MAM
Same
Superb, brother Damodaran...
Thank you for this video. Requesting to include an example in the video for this evaluation,
Fantastic sessions
EVERYTHING GOES ABOVE MY HEAD !!! OMG
thanks for the lessons
This is gold.
Dear sir i understand DCF is one of the tools available to arrive at intrinsic value can you suggest few more tools available under intrinsic valuation approach. Further we arrive book value per share based on Net asset value method under which valuation approach it will be covered. Since Intrinsic approach is based on cash flows and relatives approach based on comparable. Kindly advice
I like the way u are making these broad terms simple and understandable. I want you to make videos on financial modelling too, it will be easy for us to gain knowledge.
Whenever I hear him talking, I feel like he's telling me " I'm not angry with you, I'm just disappointed "
Is there anywhere any actual company being valued .That would be easier for some to understand.
No one:
Me to Sir Aswath : YES MASTER 👁👄👁
Thank you
Great lessons, learning a lot, but probably somwhere at 10min point completely lost everything with all the naming...:)) Will have to re-watch it.
Thank you fine sir.
ThANK YOU SO MUCH!!! PROF. DAMODARAN
Amazing thank you
Are there any courses I can engage in to excel my trading and financial literacy altogether?
Aswath is the real GOAT
Is there any source to get those ppt slides or images which sir has shown in the video?
The Intrinsic value of Damodaran must be over the roof
AMEN
Thank you...
Thank You🙏
That dividend discounted model blew my mind.
why's that?
Watching back in 2019
Great!
Sir I'm very interesting to know about Valuation sir from where I have to start my journey what is the first Step lecture I would start ,
Can i go for this whole lecture sries
Omg. It FINALLY CLICKED!
Why the fuck my lecturers couldn't explain it so simply!!!
I have this question, if anyone could reply the solution you are great!
When we discount the cash flow to the firm at the cost of equity we should get an upward biased estimate right? Like then we are only subtracting what the equity investors demand not including debt payments... from a huge amount like cash flow to business.
Similarly
When we discount the cash flow to the equity at the cost of capital we should get an downward biased estimate right? Like then we are subtracting what the equity investors demand and debt payments... from a small amount like cash flow to equity which is already have debt subtracted off?
Is it something to do with the equation?
Like the denominator side is greater or smaller because we sqaure it? [E(CFn)/(1+r)^n]
Leaving this comment so I get notified when someone answers this question
Will someone help me with this?
According to sir, when we sit for estimating the cash flows (2:32 min), you take all possible considerations in your estimation, the good and the the bad ones. Once i have a list of estimated cashflows, i take an expected value of these cashflows(assuming it to be an average of all estimates for each year). If we take an average of all good and bad cashflows, wont the cashlfows be risk adjusted, cause now they show the bad possibility also? Which is am assuming is my risk.
While considering good and bad scenarios, you still have risk factor associated with your cashflows. Say, in your case, you are averaging out cashflows for all years, each year has its risk factor associated with it and you are not cancelling that out.
When you average the cash flows you arrive at an estimate.( Expected Cash flow )
How 'certain' that cash flow will be is risk.
We will value entire business prof .
That seems more logical .
Thank you sir
Hey, this video is super cool. Is there any book you would recommend to read in order to get an in depth knowledge?
I'd say a combination of multiple books, and not one in particular.
@@Frugal_Invest can you give some examples?
@@satyamshubham6676 he has many published books you can check those out
Professor Damodaran
I am facing a problem with finding data related to risk free rate and equity risk premium(ERP) and relative risk or beta
I am form india and I'm trying to value the finance stock (bajaj finance)
Please sir try to help me to find this data and how i can find internsic value of finance stock or banking stock please sir
Thanks Professor Damodaran sir
at 3:39, i dont see t in the formula, is it that both t & n are the same?
What if the company has no debt? You are going the equity way inevitably?
I'm confused why the discount rate is adjusting for risk if the cash flows are measured based on expected values? Shouldn't the expected value component of the cash flows already account for risk since the expected value includes the probability of both good and bad times? That is, the expected value is just the weighted average of cash flows across different future scenarios with the weights being equal to the probability of that scenario occurring. The only explanation I can think of is that the expected value is capturing more "systematic" or "macroeconomic" conditions, while the discount rate would be capturing more "firm-specific" risk, but I am not quite clear and was hoping you could explain the difference between the discount rate measuring risk and the expected value capturing different "risky" scenarios.
I think that’s why there’s two approaches:
- You can use expected cash flows and adjust your discount rate. Because expected is based on hope and not certainty, expected cash flows still have some risk involved.
- Or you can adjust your cash flows aiming to certainty and then use a risk-free rate as your discount rate.
good stuff
Can anyone clear something up for me? If the equation calls for the cashflows to be divided by (1+r)^n, wouldn't that mean that the discount rate number would be absolutely massive in later time periods? I think it looks like a simple typo.
Has he done any video on SPACS?
What are other tools for intrinsic valuation apart from DCF
DDM is other popular one. Also there's an IV calculator that Ben Graham used
I think I am in love with you!
what is this from? what course?
His Voice is like He is on the Verge of telling Joke....feels like it will happen any time but never happens😂
Just a newbie’s opinion; business evaluation is better.
I'm a total noob on finance, but the formula for terminal value looks weird. Mathematically speaking, shouldn't the value of the assets equal to the sums of the geometric series? I don't understand how the terminal value is derived.
When I'm getting confused here, should I carry on to another session or beat this session to death until I understand completely?
I think I will carry on.
how do you put a number to risk?
Statistical tools used. Eg standard deviation
i always thought DCF only works on stable companies...like Coca Cola etc...what about a fast grower which currently doesnt earn or generate much cashflow...like how could have you valued Amazon 20 years ago...for example..
As he said on the previous video, you can never get it right. A valuation is an estimate, and it will always be wrong. What you can and should try to do is getting it close enough most of the time
Thanks
This guy has a really great Bond villain vibe.
❤
Why is expected value of the future cash flow not equivalent to the risk-free cash equivalent? What is the rationale behind it? Wouldn't there be an arbitrage if these two are not equal?
Sir could you please provide us the notes.