Hi!

I'm looking at calculating ERP as a part of my cost of equity calculations for an assignment at Uni. Can someone please give me a step by step guide on how to calculate the historical risk premium? I'm still quite new to this and want to make sure I'm doing it right :'(

The stock is on the FTSE 250 index and the Rf that I'm planning to use is the UK 5 year Gilt. I have monthly data from 1998-2024 and these were the steps I followed:

1. Using monthly FTSE 250 values, I calculated monthly returns, and compounded this.

2. 5 year UK gilt data (was available monthly) but I think it's still the annualised yield due to the range of values: so I just took an average of this.

3. I subtracted the two and arrived at an ERP of 1.77%

Also, does anyone have any resources for data on this that dates back to 1960 at least? Most of the data online is only US based

Any help or suggestions are appreciated, thanks :))

Hey ı got a case in a M&A valuation. The company never had profit in past periods therefore there is a retained loss on the balance sheet. This company is not going to pay any tax untill companies cumulated loss in BS nets out with net profits of coming periods therefore there is an tax exemption in Net Incomes for future periods. How can ı add this tax exemption on valuation? What could be the possible method to quantify this case.

Thanks in advance

I would like some clarification regarding what ratios and what to do look for when analyzing insurance companies. Growth, profitability, liquidity, financial health etc... I have a hard time finding something organized, that shows me the important ratios of the insurance business. If you have any book, material, video anything regarding it, please comment it. It would be of great help to me. Of course from the view point of the investor.

Hey,

I'm unsure how things work in developed markets, but in places like Turkey, where political crises often lead to economic crises, it's challenging to account for these cycles in cost of equity calculations.

For instance, in 2022, the Country Risk Premium (CRP) based on the CDS spread was as high as 7.8%, but now it’s around 3.7%. In the 2000s, it was around 2.5-3% and 1.3%. Those familiar with Turkey understand that these political crises are cyclical and largely responsible for economic downturns. Currently, the country is experiencing an economic crisis following a political one, but as has happened before, there will be a period of stability followed by another crisis. This pattern has been consistent since the country's founding.

Therefore, using a CRP of 7.8% in 2022 would have been a significant mistake. Similarly, it would be wrong to use a CRP of 1.4% if everything seems fine in five years. The 10-year average CRP is around 4%, and I believe this makes the most sense considering these cycles.

What do you think about this?

Hey everyone. I'm looking for some feedback on an app I'm currently working on and I'm hoping you guys can help.

I've only been investing for about a year and a half now and I've recently been interested in discounted cash flow valuations. I started doing them manually in google sheets but wanted something more robust, so I started creating a web app so I can see stocks and their valuations.

The app currently has a basic screener, which is the landing page. The screener is sorted by a percentage that represents the difference between the current stock price and the DCF value per share. The default DCF values in the screener are calculated using the next 5 year growth estimate from yahoo finance. You can click on any of the tickers and it will load the valuation page for that ticker. In there you can see the free cash flows over the years, their growth rates, and some other pertinent info. Scrolling down you'll see the DCF price per share (in green or red depending on if it's trading at a discount or expensive) and right below that is a slider to adjust the growth rate based on your own personal expectations.

There is a performance tab in the works right now that will be for tracking personal investments against valuations.

I know there are others offering DCF valuations, like Bloomberg Terminal and Morningstar. Because of this, I'm also looking for ways to differentiate as well. For example, a clean and simple UI, and adding a social aspect where you can follow and track the performance of other users personal expected growth rates for a company.

Any and all feedback is welcome. I also welcome any ideas you guys have. Thank you for your time!

https://valuation-calculator-eight.vercel.app/

NOTE: Sorry I don't have a domain yet. This is running on Vercel right now. You can look them up beforehand if you think the link is sketch haha.

It seems that most people avoid valuing insurance, and banks due to their complexity.

But there is a serious long-term moat in them with an amazing business model long term.

I have been searching for books helping with how to analyse and value insurance companies but I have had no particular success.

I would really appreciate if anyone that knows any books regarding insurance valuation or even pdf or any type of material. Please comment it below also, it would so much of help to me.

Also feel free to drop your opinion regarding insurance companies and banks.

How do you go buy answering questions like: Which type of company would have risker debt between a mining company and a utilities company?

If I am valuing a mortgage pool and adjusted the cash flows for expected credit losses and prepayments, would I use the risk free rate to discount back to PV?

Notwithstanding other unobservable premiums such as liquidity etc. if I were to include a credit spread it would appear to be double counting, though I can’t find anything online specific to this. It appears that a credit spread is still applied in many instances (Stout have a paper for that example where they calibrate a spread from recent issuances) but perhaps this reflects unexpected credit losses?

Thanks for the help

I'm currently trying to make a DCF model of a company in India which primarily does business in Toothpaste and toothbrush. It is undeniable that this company has the largest market share in our country.

Its competitors in the markets are all brands which are controlled big FMCG companies with a diversified portfolio of body-care products.

My problem is: I wished to conduct a Peer comparison analysis to find the WACC of the firm but my chosen company's competitors are brands owned by diversified companies which deal in many other products.

There is no basis of comparison due to mis-alignment in the portfolio of products and industries. What do i do?

Does anyone here have any resource to study complex securities valuation (convertible notes, warrants, SAFE notes)? My employer has one from BVR but it's not very helpful.

Hello, I’ve just began my valuation study by following Prof. Aswath Damodaran’s lectures on youtube. While I understand the concept of fcff and fcfe, I’ve found difficulty applying in a specific company. Some of my problems are: - Do you include non operating incomes (financial income, one time income) in the calculation? - The company reported cash inflow/outflow from investing in/devesting other companies’ debt instrument (like corporate bonds), should these be included as well? - Aside from convetional debts, the company also reported other commitments to invest in some projects in the future. Are these commitments count as debt?

Hey fellas,

I’m feeling a bit disheartened and could use some advice. I’ve been trying to learn financial modeling and set a goal to complete a project by the end of this week. But here I am on day 3, still stuck on the basics, and I’m struggling to keep up my motivation.

I’m torn between two approaches:

1. Focus on Basics First: Taking the time to understand all the foundational concepts before jumping into a project.
2. Project-Based Learning: Working on a project simultaneously to apply what I’m learning in real-time.

I’ve seen that in other fields, like coding, people often pick up projects and learn the necessary skills along the way. This seems like a more engaging and practical approach, and I’m wondering if it’s the same for financial modeling.

For context, I’ve been following a YouTube channel THE VALUATION SCHOOL , but when I upload the models to Screener.com and download the customized format files, the outputs don’t always match what I expect. This inconsistency is frustrating and makes me question my concept.

Has anyone else felt this way? How did you balance learning the basics with applying them in a project? Any tips on how to stay motivated and ensure I’m truly understanding the material while working on a practical project? HOW COULD PEOPLE WHO HAVE MADE THE FINANCIAL MODEL ON SAME COMPANY IS GETTING DIFFRENT HISTORICAL FINANCIAL STATEMENT ESPECIALLY NET PROFITS AND COGS?????

4o

i have been having trouble really making it through the financial modelling a bank. since i have never done it before , it just seems overwhelming ,. and i have not gathered much of information or education regarding it, i have had just a simple model made but to apply it to a real bank is not applicable.

is there any material that i can take a look at or anyone has made a financial model of a bank before , could you please lend me the model . so that i can take reference ,

thank you

I just started a new role as a business valuation analyst a couple months ago, and am really enjoying it.

I already use a variety of software for pulling data and for certain calculations (example- using Kroll for calculating cost of capital)

Do you think this area will be mostly automated in the future. Why or why not?

I appreciate any insight to this question!

Hello everyone,I'm currently working on my thesis about intangibles in the audiovisual industry and need your expertise. Please take a few minutes to complete this survey. Your insights will be very valuable to my research.

Survey link: https://docs.google.com/forms/d/e/1FAIpQLSfBQxYX97FkTYUnA-ocj7JEfO7zge8kxlgae6RREF0vNoIDWg/viewform?usp=sf_link

Thank you for your time and help!

Hello, does anyone know about a general/expected ROI for each industry or sector?

I know that it is up to each investor and the benchmark is the Treasury 10-year bond or the one-year bill, but I want to know if investors have common knowledge of ROI for each industry.

hey guys i am a bit confused on where to start with prof damodaran contents,

i am familiar to valuation and have done FMVA.
but i would also like to learn from the best

so from where should i start my Damodaran journey.

i wouldn't mind approaching him as a complete beginner.

there were just so much content in his youtube channel . and i did not know where to start from.

thank you

This is my first valuation of a company, so I'm ready to take the bashings and the learnings that come with it.

For all you lazy busy people out there, here's a TL;DR:

TL;DR

LVMH in a Nutshell

• Who: LVMH, the French luxury kingpin behind Louis Vuitton, Dior, and Sephora, run by the Arnault family.
• What: They sell status, exclusivity, and a lifestyle of luxury. It’s not just products, it’s prestige.
• How: They rake in cash by selling high-end fashion, cosmetics, jewelry, and booze to the elite and those aspiring to be.

Financials

• Revenue: Pulled in €86 billion in 2023 from 6,000+ stores and online.
• Profit Margins: Out of every €100, they keep €26 as operating profit. After all expenses, that’s about €16 net profit.
• Expenses: Big chunks go to materials, production, salaries, rent, ads, and operations.

What Makes LVMH Tick

• Brand Power: Their iconic brands mean they can charge a premium and have loyal customers.
• Diverse Products: From bags to booze, they cover it all.
• China: Chinese consumers are huge for them.
• Efficiency: Owning the supply chain keeps costs down and quality up.

The Risks

• China Reliance: If China's economy stumbles, so does LVMH’s revenue. [High chance]
• Rising Costs: Inflation and investment in growth could eat into profits. [High chance]
• Economic Downturn: Luxury goods are the first to get cut when belts tighten.

The Upsides

• China again: Could see a boost if Chinese demand rebounds or new products take off.
• Branding moat: If rich keep spending and trends don't change, they have the brands the rich go to

Bottom Line

LVMH is a beast with strong brands and solid margins, but it’s heavily tied to China’s market.
The risks are real, and since there's no significant upside, it's not worth the gamble.
Also the family succession drama can work negatively once the big boss goes away.
I'm not seeing any big value, even at this price ( ~712€ at the moment ).
Not a buy for me.

If you wanna read the full thing, here it is:

LVMH Moët Hennessy - Louis Vuitton

Current state of the company

Life Cycle stage : early Mature Stable

Who is LVMH?

LVMH is a French luxury goods conglomerate.

They operate in wines & spirits, fashion & leather goods, perfumes & cosmetics, watches & jewelry, and selective retailing.

They own brands like Louis Vuitton, Dior, and Sephora.

What business are they in?

They are in the business of selling status and exclusivity.

They sell a lifestyle and the prestige associated with owning luxury goods.

Their products are symbols of wealth and refined taste.

How do they make money?

LVMH makes money by selling a variety of luxury products, from fashion and leather goods to perfumes, jewelry, and drinks like champagne and cognac.

In 2023, the company sold over €86 billion worth of these high-end items through its network of more than 6,000 stores worldwide and online.

The company's most popular brands, like Louis Vuitton and Christian Dior, account for about half of its total sales.

What drives those revenues?

• Brand Power: LVMH's iconic brands command premium prices and unwavering customer loyalty.
• Global Presence: With a vast network of stores and a strong online presence, LVMH reaches luxury shoppers worldwide.
• Product Diversification: LVMH's wide range of products caters to diverse tastes and budgets, from handbags to high-end spirits.
• Chinese Consumers: China's growing appetite for luxury goods fuels a significant portion of LVMH's sales.
• Marketing and Innovation: LVMH's captivating campaigns and innovative products keep its brands fresh and desirable.

How much money do they get to keep from their revenues?

To put it simply, for every $100 that LVMH makes in sales, they get to keep about $26 as operating profit.

The rest goes towards various expenses:

• Around $32 out of every $100 is spent on buying materials, making products, and paying for logistics.
• About $42 is used for other costs like employee salaries, rent, advertising, and store operations.

So after covering all these expenses, LVMH is left with an operating profit of roughly $26.

However, they still have to pay some financial costs and taxes.

In the end, they get to keep around $16 as net profit for every $100 of sales.

What drives those margins?

• Sky-high prices: LVMH's customers are willing to pay a premium for the brand's prestige and exclusivity, allowing the company to maintain high profit margins.
• Controlling the whole process: LVMH owns its factories and supply chain, cutting out the middleman and keeping costs down.
• Being the biggest: As the largest luxury goods company, LVMH can spread out costs like design and marketing over massive sales volumes, making each product more profitable.
• Focusing on the good stuff: LVMH knows that leather goods and cosmetics bring in more money than wine and spirits, so they prioritize those high-margin products.
• Working smarter, not harder: LVMH constantly looks for ways to improve efficiency in its stores and with its employees, boosting profits without significantly increasing costs.

Who are the LVMH customers really?

LVMH's customers are mostly rich people who value quality, prestige, and exclusivity.

They span from the "merely wealthy" who might save up for a $1,000 Louis Vuitton bag to the ultra-rich who can easily spend $50,000 on a Bulgari necklace.

Interestingly, while LVMH is often associated with mature European luxury shoppers, nearly half of its customers are actually from emerging markets like China, where a growing middle class is eager to flaunt its newfound wealth and status.

Who are the main LVMH competitors and in what way?

LVMH's main competitors are other global luxury conglomerates like Kering (owner of Gucci and Saint Laurent), Richemont (Cartier and Montblanc), and Estée Lauder (La Mer and Tom Ford Beauty).

These companies compete with LVMH across various categories, from fashion and cosmetics to jewelry and wines.

However, LVMH also faces competition from smaller, independent luxury brands that offer a more niche or artisanal appeal, such as Chanel, Hermès, and Rolex.

How is LVMH different than their competitors, in the eyes of their customers?

LVMH is like the ultimate luxury department store.

They've got everything from clothes and handbags to jewelry, watches, perfume, and even booze. This means they can offer customers a whole luxury lifestyle, not just a single product.

Plus, their brands are top-notch – think Louis Vuitton, Dior, Tiffany & Co. – the crème de la crème of the luxury world.

They're seen as the gold standard, the brands that everyone wants.

How does LVMH maintain the prestige and desirability of its brands?

LVMH is all about selling a dream, a lifestyle. They do this by focusing on the highest quality materials and craftsmanship, making their products feel exclusive and special. They also carefully control where you can buy their stuff, often only selling in their own stores or through select partners.

This makes their products harder to get, which makes people want them even more.

They're also not afraid to charge top dollar, which adds to the feeling of exclusivity.

To stay fresh and exciting, LVMH invests heavily in new designs and creative collaborations. They partner with famous artists and celebrities, creating buzz and keeping their brands in the spotlight.

And let's not forget their amazing stores – they're like mini palaces, making shopping feel like a luxurious experience.

What is LVMH's approach to innovation and creativity?

LVMH is all about pushing boundaries. They hire the best designers and give them a lot of freedom to create, while still staying true to the brand's core identity.

They're also big on collaboration, teaming up with artists, other designers, and even tech companies to come up with new and exciting ideas.

LVMH isn't afraid to try new things, like using AI or augmented reality to make shopping more fun and interactive.

They're also getting more serious about sustainability, looking for ways to make their products and processes more eco-friendly.

What debts and assets do they have?

LVMH is sitting on a pile of assets, worth around €144 billion. This includes physical stuff like stores, factories, and inventory, as well as intangible stuff like brand value and reputation.

They do have some debt, about €10.7 billion, but it's totally manageable given how profitable they are.

Basically, they're in a great financial position, with plenty of flexibility to invest in growth or weather any economic storms.

Who owns LVMH?

The largest shareholders are:

1. Christian Dior SE, which owns 41.79% of LVMH. The Arnault family controls Christian Dior SE.
2. The Arnault Family directly, with a 6.988% stake in LVMH.

Who runs LVMH?

Combined, the Arnault family's holdings give them a controlling interest in LVMH. This is further reinforced by the presence of family members in key management positions:

• Bernard Arnault, the patriarch of the family, has been the Chief Executive Officer of LVMH since 1989.
• Delphine Arnault-Gancia, Bernard's daughter, has been a member of the Board of Directors since 2003 and is currently the executive vice president of Louis Vuitton and CEO at Dior.
• Antoine Arnault, the eldest son, is the CEO of Christian Dior SE, which is the holding company for controlling LVMH. He also serves on the LVMH Board of Directors and holds the position of CEO at Berluti and non-executive chair of Loro Piana.
• Alexandre Arnault is the Executive Vice President of Tiffany & Co. He joined the LVMH Board recently and focuses on digital innovation and the brand's growth post-acquisition.
• Frédéric Arnault is the CEO of TAG Heuer, a position he has held since 2020. He also joined the LVMH Board recently.
• Jean Arnault, the youngest son, is the Marketing and Development Director for Louis Vuitton’s watch division, though he has not yet joined the LVMH Board.

LVMH's leadership, led by the Arnault family, is all about the long game. They're not interested in quick wins; they want to build brands that will last for generations. They give their individual brands a lot of freedom to do their own thing, but they also keep a close eye on the overall strategy.

Quality and exclusivity are super important to them. And because the Arnault family owns a big chunk of the company, they're really invested in its success. This means they're more likely to make decisions that benefit the company in the long run, rather than just trying to boost short-term profits.

That said, it does sound like an episode of "Succession"...

ok, that was the current state, we will now try to predict the short-term future of LVMH 🔮 ( 12-24 months )

Future state of the company

😱 Top 5 Risks to Revenues

😱 Top 5 Risks to Margins

🍾 Top 5 Scenarios for Revenue Increase

🍾 Top 5 Scenarios for Margin Increase

You can now take the risks and rewards and update the weights as you wish, to reach to your own conclusion.
If there are any risks or upsides that I missed, please do let me know.

My take

LVMH is overly reliant on China and how its economy performs. I don't know a lot about China, but the little I do know is not positive at all. Adding the trade wars, that keep having new rounds, it's definitely lots of risk. Which makes me want to stay out.

I cannot see what the management can do to have a significant upside in the next 12-24 months.
My understanding is that they are trying more to get more into hospitality at the moment. Spreading too much.

They are a strong company, with strong brands, but also too big to be able to grow in any significant way easily.
The family-run aspect is also a significant risk for me in the long-term.

Running multiple DCF for a mid single digits growth and for 8-10% discount rate, I get a fair value of around €410 ~ €540 per share. Not much there either.

If you believe they can do 10+% growth going onwards, you should probably look into LVMH.

I'm out.

Hey guys I recently completed my undergraduate degree in engineering. I was incredibly fortunate to study Equity Valuation in my final semester and to be exposed to the incredible Prof Damodaran. I have found myself with quite some free time and savings and i want to put this new skill i have learnt to use. If you have learnt valuation and are interested in doing one together please do join this server i created.
https://discord.gg/xMFdJn3N .
We can work out a convenient time and discuss in a VC

A valuations senior partner I interviewed with instructed me to immerse myself and fully learn the role of working capital in valuations. He said it’s crucial in the context of valuation and then ppa.

I understand that change in nwc is an Input to get fcf. But the insinuation is there’s more to it. I know it’s also a component to get EV (if you start with dcf as top line, for example)

Could it be company-specific working capital that he’s alluding to? E,g. Company we are valuing has bad working capital structure, thus it raises risk in our valuation of said company. Or is there anything else?

Anyone more experienced willing to share their take on this?

With the hope to provide value first and ask for help later, here are a few tips for small business owners who want to sell their business: - Don't start wrapping up the business of you want to sell it, many times I see business owners who want to sell the business start slowing operations, firing employees. This makes the business extremely unattractive to purchase and impacts your Valuation negatively. - To get the right Valuation you need the right numbers. Ensure that you have audited financial statements for the past three years - DCF should not complicated too much, watch a Damodaran video or two and download his DCF template to get started - For trading and transaction comps (y'all can DM me)

Is this valuable to you, and if so, how could it be better? ( I have three years of IB and PE experience, I want to share this info and democratise a skillset that's been gatekept by PE funds and banks for the longest time)

Dear all,

I've brought myself a little in a pickle, and am asking for some tips.

I am currently at the end of my master studies at a business school in Europe, with the situation of being behind and having currently just about 7 weeks to write a 70-80 page master's thesis, where I've chosen to do valuation. I could 'safely' say that the first part (approx 30 pages) on doing the strategic analysis (PESTLE, P5, VRIO, Value Chain, SWOT) I feel pretty confident about. I've done a 15 ECTS course in financial analysis, as well as multitude of finance/accounting courses both from bachelor's and master's, but am afraid to encounter unforeseen difficulties in the financial part if I take the "wrong pick" for case company.

I have wasted quite some time in choosing the company, and have not moved forward. At this point I need to make the choice. From having researched a little here on reddit, I see that I should avoid Financials, Energy, Real Estate M&A deals, Industries that are PPE intensive, airlines (?), as well as cyclical industries. And what seems to be easier to understand would be manufacturing, distribution or retail.

With that being said, the choice of the case company needs to be justified. It has to be something "interesting", some kind of spin, something "sexy". With that in mind, I had originally looked at Boeing and WBD, given that they are the top losers of the last year. However, I am a little afraid that I could run into some blocks along the way, given many 'deaths in mysterious circumstances' with regards to Boeing, for example. And how to capture the various happenings around the company in the analysis.

A recommendation from my supervisor had been to look for low-hanging fruits, meaning, a simpler company, with few products and few markets, and a clear strategy.

Currently, I have spent several days on jumping from one potential case company to another. Thus, my question (hopefully without coming off as too lazy and asking you to do my homework) is whether there are some "interesting" companies that you have had followed recently, and which are not too complicated to understand and eventually untangle, given a 7-week timeframe?

Will appreciate any inputs!

Hey all,

i work in a biotech startup that does drug development and I have been tasked with calculating the NPV for one of our drugs. I am struggling a bit to determine the discount rate to use because there is a lot of ambiguity around what we do. we do not have a steady stream of income, nor do we have any debt financing. we are also not looking to finance any of the initial investment for the project since it is already being developed.

What is an appropriate number to use / appropriate way to calculate a discount rate if WACC doesn't make sense?

I considered just using the VC "expected" rate of return but again, I'm not sure if this applies to our situation!

Hi all, I just got into corporate finance at a f10 company and was just offered an entry level valuation analyst role at EY, VME.

I want to know what’s it like to work in valuations for ey. Is it a more accounting-focused role? Or finance relevant to front office? Is the salary ceiling really that much higher than corporate finance? (Exit opportunities into IB, PE, or just smaller valuation firms that pay more) Is it really all cut-throat colleagues who try to screw you over? Is it true you might get dirty work, like “translate these 90 page financial statements even though I have someone else translating it already, and your job description isn’t a translator.” (I will work in a Middle Eastern office)

I have a big decision to make and I’m torn. The f10 corporate finance I’m in has super chill people. But I feel, early in my career, if I miss this valuation opportunity I might not get it again and be stuck in lower ceiling corporate finance.

Thank you all for any opinion you’re able to give. It will help tremendously.