Aswath Damodaran 408
Regression Results
! Regressing changes in firm value against changes in inflation over this period
yields the following regression –
Change in Firm Value = 0. 2262 + 0. 57 (Change in Inflation Rate)
( 3. 22 ) ( 0. 13 )
Conclusion: Disney’s firm value does not seem to be affected too much by changes in
the inflation rate.
! Regressing changes in operating cash flow against changes in inflation over
this period yields the following regression –
Change in Operating Income = 0. 2192 + 9. 27 ( Change in Inflation Rate)
( 3. 01 ) ( 1. 95 )
Conclusion: Disney’s operating income seems to increase in periods when inflation
increases. However, this increase in operating income seems to be offset by the
increase in discount rates leading to a much more muted effect on value.
Operating income tends to move with inflation, but firm value does not. (This is
not surprising, if cashflow effects and discount rate effects cancel out)
I would weigh the operating income regression more in determining whether to
use floating rate or fixed rate debt, since the cash flows each year go towards
paying the coupons.
