In traditional valuation models, we begin by forecasting earnings and cash flows anddiscount these cash flows back at an appropriate discount rate to arrive at the value of a firm or asset. This task is simpler when valuing firms with positive earnings, a long history of performance and a large...

Most firm valuation models start with the after-tax operating income as a measure of the operating income on a firm and reduce it by the reinvestment rate to arrive at the free cash flow to the firm. Implicitly, we assume that the operating expenses do not include any financing expenses (such as...

In recent years, firms have turned to their attention increasingly to ways in which they can increase their value. A number of competing measures, each with claims to being the quot;bestquot; approach to value creation, have been developed and marketed by investment banking firms and consulting...

In recent years, practitioners and academics have made the argument that traditional discounted cash flow models do a poor job of capturing the value of the options embedded in many corporate actions. They have noted that these options need to be not only considered explicitly and valued, but...

Uncertainty is a fact of life in business and investing, but the responses that analysts and investors have to uncertainty is often unhealthy, ranging from denial and paralysis, at one extreme, to rules of thumb that have no basis in common sense, at the other. In this paper, we look at how...

In conventional valuation, we usually value businesses as aggregated entities, estimating total revenues, earnings and cashflows, across the different businesses and customers that the company has, and then discounting those cash flows back at a discount rate that reflects the weighted risk...

There is nothing more exciting for a nascent business than the perceived presence of a big market for its products and services, and the allure is easy to understand. In the minds of entrepreneurs in these markets, big markets offer the promise of easily scalable revenues, which if coupled with...

This paper presents a detailed anatomy of the nearly sevenfold run-up in the price of Tesla stock between March 22, 2013 and February 26, 2014 with the goal of attempting to determine the role played by investor sentiment. Tesla offers a unique opportunity in this context because the run-up was...

Equity risk premiums are a central component of every risk and return model in finance and are a key input in estimating costs of equity and capital in both corporate finance and valuation. Given their importance, it is surprising how haphazard the estimation of equity risk premiums remains in...

As companies and investors globalize, we are increasingly faced with estimation questions about the risk associated with this globalization. When investors invest in China Mobile, Infosys or Vale, they may be rewarded with higher returns but they are also exposed to additional risk. When Siemens...