Critical Look at using DCF for Valuations

Professor Damodaran has written a ton of articles about Discounted Cash Flow (DCF) analysis over the years.  I don’t think another website has as much information about valuation and DCF as on his blog – so it is a wonderful resource to visit and use for investors.  His latest blog post on DCF which defends the use of DCF as a valuation technique is a good topic.  Many investors have discredited the use of the DCF technique and Damodaran tries to initially cover some of these myths and focus on the critical use of DCF in valuing companies.  It appears that he will cover, in detail, the myths of DCF over the upcoming year! It is my opinion that a DCF analysis, in theory, is the right way to value a business or asset.  An asset is only valuable if it will give a return to an investor.  An asset has a defined life, and the total amount of cash returned to an investor over the life of an asset, discounted for risk and time value of money is the final value of that asset.  The theory is solid, as is the basic DCF calculation process.  This simple chart is…

Read more

Wealth of Data Provided by Aswath Damodaran

I was reading Aswath Damodaran’s blog about the dark side of numbers and began to look at the updated data sets that he provides for free on his data page site.  If you do not know who Aswath Damodaran is, he is a professor of finance at the Stern school of business at NYU.  He teaches classes on Corporate Finance and Valuation, and is pretty well known for his knowledge and studies on valuing businesses.  As I started to dig into the data that is provided on his page, I was amazed. First of all, you can visit his Stern school of business page and review a wealth of information including his lecture notes and examples.  There is so much information available that is hard to provide examples, so I suggest that you visit his site and review everything available.  You are bound to find a lot of interesting and useful stuff. His Data Page site consists of information that he has pulled from various sources (Value Line, Bloomberg and CapitalIQ) and assembled into valuable spreadsheets that are freely downloadable.  Again, there is so much information available that it is hard to quickly cover it all in a blog post,…

Read more