Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

Unlevered

beta

Shouldbetheweighted

average of the

unlevered beta of

operatingassetsandthe

betaof cash(generally

zero). Weights should

be based on estimated

values of operating

assets and cash.

Unlevered beta of

just the operating

assets.

Accounting

returns

Should be measured

using total earnings

(including earnings

from cash) and capital

inclusive of cash.

Should be measured

using noncash

earnings, and cash

shouldbenettedfrom

capital measure.

Growth rate

Growth rate should

reflect growth in

consolidated earnings

(including earnings

from cash).

Growth rate should

be only in operating

earnings.

Final

valuation

The present value of

the cash flows will

already include cash.

Do not add cash to it.

Thepresentvalue of

thecashflowsisthe

valueoftheoperating

assets.Cashhastobe

added to it.

Equity Multiples

The most widely used equity earnings multiple is the
price-earningsratio,anditisinterestingthatfewanalystswho
useitseemtoconsidertheconsequencesofhavinglargecash
balancesforthismultiple.Ifafirmhasoperatingassetsanda
largecashbalance,thedifferentratesofreturnandlevelsof