Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )
Basedonourprojections,SiriusRadiocanexpecttocontinue reporting operating losses for the nextfour years, but the margins will imp ...
revenuestogrowby$1billionanduseasales-to-capitalratio of2.5,wewouldestimateareinvestmentneedforthisfirmof $400 million ($1 billi ...
inthatyearanddivideitbythetotalcapitalinvestedinthat firm in that year. The former number comes from our estimatesofrevenuegrowt ...
sales-to-capital ratio for the firm and the average sales-to-capital ratio for its peer group. Weuseasales-to-capitalratioof1.50 ...
Sincewecannot estimatecash flowsforever,wegenerally imposeclosureindiscountedcashflowvaluationbystopping ourestimationofcashflow ...
rate is 3 percent, the expected liquidation value can be estimated: The limitation of this approach is that it is based on accou ...
revenues in that year. For instance, a firm with expected revenues of $6 billion 10 years from now will have an estimated termin ...
flows back into new assets and extend their lives. If we assumethatcashflows,beyondtheterminalyear,willgrow ataconstantrateforev ...
Partofthereason foritis thatsmallchangesin thestable growthratecanchangetheterminalvaluesignificantlyand the effect gets larger ...
an expectedinflationcomponent. If thevaluationis a real valuation,the stablegrowth rate willbe constrained to be lower. Again, u ...
risklessratethatgoesintothediscountrateandthegrowth rateoftheeconomy.Notethattherisklessratecanbewritten as: Inthelongterm,there ...
Equity Risk Whenlookingatthecostofequity,high-growthfirmstendto bemoreexposedtomarketrisk(andhavehigherbetas)than stable-growthf ...
whobelievethattheonlyassumptionconsistentwith stable growthistoassumenoexcessreturns;thereturnoncapitalis set equalto thecostof ...
reestimatetheratingandthecostofdebtforafirmasyou change its revenues and operating income. Onthepracticalquestionofwhatdebtratio ...
Ifweassume,forinstance,astablegrowthrateof 4 percent (basedonthegrowthrateoftheeconomy)forGoldmanSachs and a return on equity of ...
Finally,lookingatfreecashflowstothefirm,weestimated theexpectedgrowthinoperatingincomeasafunctionofthe return on capital and the ...
Substituting in thestable growth rate asa function of the reinvestment rate, from above, we get: Settingthereturnoncapitalequalt ...
Afteryear5,thegrowthrateisexpectedtodropto5%and thereturnoncapitalisexpectedtostayat20%.Theterminal value can be estimated as fo ...
Notethattheterminalvaluedecreasesby$16millionbutthe cashflowinyear 5 alsoincreasesby$16millionbecausethe reinvestmentrateattheen ...
dividends),theexpectedreturnonequity(whichdetermines theexpectedgrowthrate),andthebeta(whichaffectsthecost ofequity).InIllustrat ...
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