I kicked off the valuation class with a discourse (actually, more of a rant) about the bias in the valuation process and how it skews numbers. I firmly believe that bias is, by far, the biggest enemy of good valuations and that it is pervasive. By bias, I am referring not only to the preconceptions we bring into the valuation of a company but also to the payoff to doing the valuation. He who pays the prices sets the bias in motion, and the valuation reflects it. Thus, if I were an investment banker hired to value a target company in an acquisition, I am going to bias my value upwards, since I...
Rebirths and Fresh starts!
As many of you know already, I view myself as a teacher first and everything else - academic, researcher, professor - second. There are many reasons why I love teaching but as I get ready for the first class of the Spring semester, here is one. I get to start with a completely fresh slate, with a new class and a new subject. Everything I have done before is irrelevant and any mistakes or accomplishments from the past are erased. That kind of new beginning is tough to find in any other profession. The closest you can get to it is when you get a new job at a company where you know no one.... But...
Data update for January 2009
As those of you who are on my mailing list (now about 15000 long) know, I just completed by annual update of data about a week ago. If you are unfamiliar with my data updates, you can get the data on my website:http://www.stern.nyu.edu/~adamodar/New_Home_Page/data.htmlI have been reporting industry averages for corporate finance and valuation variables (returns, betas, costs of capital multiples) for a while now: this is my 15th annual update for US companies, and my seventh for European, Japanese and Emerging Market companies. In most years, the changes over the previous year have...
Corporate Finance - post crisis
I just finished teaching my first corporate finance class in the post-crisis period (to an executive MBA class). Having taught this class for close to 25 years now, I was wondering how I would bring in the events of the last few months into the sessions and be able to draw out the implications for businesses. I must confess that it was a lot less trying than I thought it would be.In broad terms, these are the corporate finance implications that I see for the near future and the long term:a. In investment analysis: I see a shift away from expected value and base case valuations that have dominated...
Accounting Fraud
The news of the day is the resignation of the CEO of Satyam Computer, Ramalinga Raju, after admitting to fraud on a grand scale. Revenues and earnings were overstated massively over the last couple of years, and the company admitted that the cash that had been reported on the last balance sheet did not exist.I would claim to be surprised and shocked by this news but I am not, becuase it is one in a long series of similar events - Enron, Parmalat, Worldcom etc. Rather than focus on Satyam and the sins of its managers, I would like to make some general points about accounting fraud and its consequences:1....
