Dark Side of Valuation, The
Valuing Young, Distressed, and Complex Businesses
3rd Edition
Published on 24. April 2018
800 pages
978-0-13-485420-5 (ISBN)
Description
The Definitive Guide to Valuing Hard-to-Value Companies: Fully Revised for Today's Financial Markets
Valuing money-making companies that have long histories and established business models is straightforward. It is when you encounter difficult-to-value companies that you feel the urge to go over to the dark side of valuation-where you abandon first principles and create new metrics. Aswath Damodaran looks at a range of these companies, from start-ups in new businesses to distressed companies, from banks facing regulatory turmoil to commodity firms, and from emerging market upstarts to multinationals that spread across geographies and businesses. With each grouping, he helps you examine the call of the dark side and its practices and frameworks to value these firms.
To answer these questions, Aswath looks at companies across the life cycle and in different markets, from Uber and Shake Shack at one end of the spectrum to Vale, Royal Dutch, and United Technologies at the other end.
In the process, you learn how to
Deal with "abnormally low" and negative risk-free rates in valuation
Adapt to dynamic and changing risk premiums
Value young companies that are disrupting existing businesses
Analyze commodity and cyclical companies across cycles
Value a company as the sum of its parts or as an aggregation of its users/subscribers and customers
Determine the difference between pricing and valuation, and why some investments can only be priced
Valuing money-making companies that have long histories and established business models is straightforward. It is when you encounter difficult-to-value companies that you feel the urge to go over to the dark side of valuation-where you abandon first principles and create new metrics. Aswath Damodaran looks at a range of these companies, from start-ups in new businesses to distressed companies, from banks facing regulatory turmoil to commodity firms, and from emerging market upstarts to multinationals that spread across geographies and businesses. With each grouping, he helps you examine the call of the dark side and its practices and frameworks to value these firms.
To answer these questions, Aswath looks at companies across the life cycle and in different markets, from Uber and Shake Shack at one end of the spectrum to Vale, Royal Dutch, and United Technologies at the other end.
In the process, you learn how to
Deal with "abnormally low" and negative risk-free rates in valuation
Adapt to dynamic and changing risk premiums
Value young companies that are disrupting existing businesses
Analyze commodity and cyclical companies across cycles
Value a company as the sum of its parts or as an aggregation of its users/subscribers and customers
Determine the difference between pricing and valuation, and why some investments can only be priced
More details
Edition
3rd edition
Language
English
Place of publication
NJ
United States
Publishing group
Pearson Education (US)
Target group
Professional and scholarly
File size
15,61 MB
ISBN-13
978-0-13-485420-5 (9780134854205)
Copyright in bibliographic data and cover images is held by Nielsen Book Services Limited or by the publishers or by their respective licensors: all rights reserved.
Schweitzer Classification
Other editions
Additional editions
Aswath Damodaran
Dark Side of Valuation, The: Valuing Young, Distressed, and Complex Businesses
Valuing Young, Distressed, and Complex Businesses
Book
06/2018
3rd Edition
Pearson FT Press
€53.49
Shipment within 15-20 days
Person
Aswath Damodaran is Professor of Finance at the Stern School of Business at New York University. He teaches the corporate finance and equity valuation courses in the MBA program. He received his MBA and PhD from the University of California at Los Angeles. He has written several books on corporate finance, valuation, and portfolio management. He has been at NYU since 1986 and has received the Stern School of Business Excellence in Teaching Award (awarded by the graduating class) eight times. He was profiled in BusinessWeek as one of the top twelve business school professors in the United States in 1994 and was chosen the most popular business school professor in 2012.
Content
Preface to the Third Edition xx
Chapter 1 The Dark Side of Valuation 1
Foundations of Value 1
Valuation Across Time 7
Valuation Across the Life Cycle 9
Valuation Across the Business Spectrum 15
The Dark Side of Valuation Beckons 23
Conclusion 26
PART I: ENLIGHTENMENT: THE TOOLS
Chapter 2 Intrinsic Valuation 29
Discounted Cash Flow Valuation 29
Variations on DCF Valuation 63
What Do Intrinsic Valuation Models Tell Us? 73
Conclusion 74
Chapter 3 Probabilistic Valuation: Scenario Analysis, Decision Trees, and Simulations 75
Scenario Analysis 75
Decision Trees 79
Simulations 88
An Overall View of Probabilistic Risk Assessment Approaches 101
Conclusion 104
Chapter 4 Relative Valuation/Pricing 105
What Is Relative Valuation? 105
The Ubiquity of Relative Valuation 107
Reasons for Popularity and Potential Pitfalls 107
Standardized Values and Multiples 109
The Four Basic Steps of Using Multiples 111
Reconciling Relative and Intrinsic Valuations 131
Conclusion 132
Chapter 5 Real Options Valuation 133
The Essence of Real Options 133
Real Options, Risk-Adjusted Value, and Probabilistic Assessments 135
Real Options Examples 137
Caveats for Real Options 153
Conclusion 155
Appendix: Basics of Options and Option Pricing 156
PART II: THE DARK SIDE OF MACRO INPUTS
Chapter 6 A Shaky Base: A "Risky" Risk-Free Rate 169
What Is a Risk-Free Asset? 169
Why Do Risk-Free Rates Matter? 170
Estimating a Risk-Free Rate 171
Issues in Estimating Risk-Free Rates 180
Closing Thoughts on Risk-Free Rates 194
Conclusion 196
Appendix 6.1 196
Chapter 7 Risky Ventures: Assessing the Price of Risk 199
Why Do Risk Premiums Matter? 199
What Are the Determinants of Risk Premiums? 202
Standard Approaches for Estimating Risk Premiums 204
Equity Risk Premiums 205
Default Spreads 207
Problem Scenarios 208
The Dark Side 209
The Light Side 210
Conclusion 226
Appendix 7.1 227
Chapter 8 Macro Matters: The Real Economy 231
Growth in the Real Economy 231
The Dark Side 237
The Light Side 238
Expected Inflation 239
The Dark Side 246
The Light Side 247
Exchange Rates 248
The Dark Side 253
The Light Side 255
Conclusion 256
PART III: THE DARK SIDE ACROSS THE LIFE CYCLE
Chapter 9 Baby Steps: Young and Start-Up Companies 259
Young Companies in the Economy 259
Valuation Issues 263
The Dark Side 268
The Light Side 275
Conclusion 321
Chapter 10 Shooting Stars: Valuing Growth Companies 323
Growth Companies 323
Characteristics of Growth Companies 326
Valuation Issues 328
The Dark Side of Valuation 333
The Light Side of Valuation 343
Conclusion 375
Chapter 11 The Grown-Ups: Mature Companies 377
Mature Companies in the Economy 377
Valuation Issues 380
The Dark Side of Valuation 384
Relative Valuation 391
The Light Side of Valuation 392
Conclusion 430
Chapter 12 Winding Down: Declining Companies 431
Declining Companies in the Economy 431
Valuation Issues 433
The Dark Side of Valuation 438
The Light Side of Valuation 446
Conclusion 491
PART IV: THE DARK SIDE ACROSS COMPANY TYPES
Chapter 13 Ups and Downs: Cyclical and Commodity Companies 493
The Setting 493
The Dark Side of Valuation 496
The Light Side of Valuation 502
Conclusion 524
Chapter 14 Mark to Market: Valuing Financial Services Companies 525
Financial Services Firms: The Big Picture 525
Characteristics of Financial Services Firms 528
The Dark Side of Valuation 532
The Light Side of Valuation 536
Conclusion 560
Chapter 15 Invisible Investments: Valuing Firms with Intangible Assets 561
Firms with Intangible Assets 561
The Dark Side of Valuation 567
The Light Side of Valuation 572
Conclusion 604
Chapter 16 Volatility Rules: Emerging-Market Companies 607
The Role of Emerging-Market Companies 607
The Dark Side of Valuation 610
The Light Side of Valuation 614
Conclusion 639
Chapter 17 Going to Pieces: Disaggregated Value 641
Aggregation versus Disaggregation 641
Multinational Conglomerates 642
The Dark Side of Valuation 648
The Light Side of Valuation 651
User/Subscriber/Customer Companies 677
Conclusion 694
Chapter 18 The Cynic's Corner: Value versus Price 695
Value versus Price 695
Investing versus Trading 696
The Right Approach 699
Categorizing Investments 702
The Questionable Investments 716
Conclusion 731
PART V: THE FINALE
Chapter 19 The Jedi Way: Vanquishing the Dark Side 733
Enlightening Propositions 733
Conclusion 742
Index 743
Chapter 1 The Dark Side of Valuation 1
Foundations of Value 1
Valuation Across Time 7
Valuation Across the Life Cycle 9
Valuation Across the Business Spectrum 15
The Dark Side of Valuation Beckons 23
Conclusion 26
PART I: ENLIGHTENMENT: THE TOOLS
Chapter 2 Intrinsic Valuation 29
Discounted Cash Flow Valuation 29
Variations on DCF Valuation 63
What Do Intrinsic Valuation Models Tell Us? 73
Conclusion 74
Chapter 3 Probabilistic Valuation: Scenario Analysis, Decision Trees, and Simulations 75
Scenario Analysis 75
Decision Trees 79
Simulations 88
An Overall View of Probabilistic Risk Assessment Approaches 101
Conclusion 104
Chapter 4 Relative Valuation/Pricing 105
What Is Relative Valuation? 105
The Ubiquity of Relative Valuation 107
Reasons for Popularity and Potential Pitfalls 107
Standardized Values and Multiples 109
The Four Basic Steps of Using Multiples 111
Reconciling Relative and Intrinsic Valuations 131
Conclusion 132
Chapter 5 Real Options Valuation 133
The Essence of Real Options 133
Real Options, Risk-Adjusted Value, and Probabilistic Assessments 135
Real Options Examples 137
Caveats for Real Options 153
Conclusion 155
Appendix: Basics of Options and Option Pricing 156
PART II: THE DARK SIDE OF MACRO INPUTS
Chapter 6 A Shaky Base: A "Risky" Risk-Free Rate 169
What Is a Risk-Free Asset? 169
Why Do Risk-Free Rates Matter? 170
Estimating a Risk-Free Rate 171
Issues in Estimating Risk-Free Rates 180
Closing Thoughts on Risk-Free Rates 194
Conclusion 196
Appendix 6.1 196
Chapter 7 Risky Ventures: Assessing the Price of Risk 199
Why Do Risk Premiums Matter? 199
What Are the Determinants of Risk Premiums? 202
Standard Approaches for Estimating Risk Premiums 204
Equity Risk Premiums 205
Default Spreads 207
Problem Scenarios 208
The Dark Side 209
The Light Side 210
Conclusion 226
Appendix 7.1 227
Chapter 8 Macro Matters: The Real Economy 231
Growth in the Real Economy 231
The Dark Side 237
The Light Side 238
Expected Inflation 239
The Dark Side 246
The Light Side 247
Exchange Rates 248
The Dark Side 253
The Light Side 255
Conclusion 256
PART III: THE DARK SIDE ACROSS THE LIFE CYCLE
Chapter 9 Baby Steps: Young and Start-Up Companies 259
Young Companies in the Economy 259
Valuation Issues 263
The Dark Side 268
The Light Side 275
Conclusion 321
Chapter 10 Shooting Stars: Valuing Growth Companies 323
Growth Companies 323
Characteristics of Growth Companies 326
Valuation Issues 328
The Dark Side of Valuation 333
The Light Side of Valuation 343
Conclusion 375
Chapter 11 The Grown-Ups: Mature Companies 377
Mature Companies in the Economy 377
Valuation Issues 380
The Dark Side of Valuation 384
Relative Valuation 391
The Light Side of Valuation 392
Conclusion 430
Chapter 12 Winding Down: Declining Companies 431
Declining Companies in the Economy 431
Valuation Issues 433
The Dark Side of Valuation 438
The Light Side of Valuation 446
Conclusion 491
PART IV: THE DARK SIDE ACROSS COMPANY TYPES
Chapter 13 Ups and Downs: Cyclical and Commodity Companies 493
The Setting 493
The Dark Side of Valuation 496
The Light Side of Valuation 502
Conclusion 524
Chapter 14 Mark to Market: Valuing Financial Services Companies 525
Financial Services Firms: The Big Picture 525
Characteristics of Financial Services Firms 528
The Dark Side of Valuation 532
The Light Side of Valuation 536
Conclusion 560
Chapter 15 Invisible Investments: Valuing Firms with Intangible Assets 561
Firms with Intangible Assets 561
The Dark Side of Valuation 567
The Light Side of Valuation 572
Conclusion 604
Chapter 16 Volatility Rules: Emerging-Market Companies 607
The Role of Emerging-Market Companies 607
The Dark Side of Valuation 610
The Light Side of Valuation 614
Conclusion 639
Chapter 17 Going to Pieces: Disaggregated Value 641
Aggregation versus Disaggregation 641
Multinational Conglomerates 642
The Dark Side of Valuation 648
The Light Side of Valuation 651
User/Subscriber/Customer Companies 677
Conclusion 694
Chapter 18 The Cynic's Corner: Value versus Price 695
Value versus Price 695
Investing versus Trading 696
The Right Approach 699
Categorizing Investments 702
The Questionable Investments 716
Conclusion 731
PART V: THE FINALE
Chapter 19 The Jedi Way: Vanquishing the Dark Side 733
Enlightening Propositions 733
Conclusion 742
Index 743
