Topic · Core Finance & Asset Classes
← All topicsValuation Methods
58 articles · 10 checkpoints · 31 deeper reads · 17 reference notes
A standalone topic: it is on no roadmap, so read it on its own terms.
Every article, in reading order
plant a flag as you finish eachRead these first
WACC handles debt by shaving the discount rate, which only works if the debt ratio never moves. APV instead values the business as if it had no debt at all, then adds the financing benefits back on as separate, visible line items.
Valuing a private company means starting from the same tools used on public companies and then subtracting for what a private stake cannot do, trade instantly, diversify a shareholder's risk, or borrow at market rates.
A three-statement model wires the income statement, balance sheet and cash flow statement into one spreadsheet so that a single assumption, revenue growth, a margin, a payment term, flows through all three and the balance sheet still balances every period.
Accounting profit is struck after paying lenders but before paying shareholders, so a company can report record earnings while quietly destroying value. Economic value added fixes that by charging rent on every dollar of capital the business is using.
Discounted cash flow valuation asks you to pick a cash flow and a discount rate that match, get the pairing wrong, mixing a cash flow meant for all investors with a rate meant for shareholders alone, and the valuation is wrong no matter how careful the rest of the model is.
Some corporate decisions are really options in disguise, the right, not the obligation, to expand, delay or abandon a project, and a DCF that ignores that flexibility systematically undervalues them.
Instead of forecasting cash flows to get a price, a reverse DCF starts from today's stock price and solves backward for the growth rate the market must already be assuming, which turns valuation from a guessing game into a sanity check.
A company that runs three different businesses does not deserve one multiple. Sum-of-the-parts values each segment against its own peers, then bridges from the total to a share price through corporate costs, net debt, minorities and stakes.
A company's growth rate is arithmetically pinned down by how much profit it reinvests and how well that reinvested capital performs, which is why "growth" and "value creation" are not the same thing.
A listed company's beta measures the risk of its business and its borrowing mixed together. Stripping the debt out gives a clean business risk you can average across peers, then bolt back on at whatever capital structure you actually care about.
Then the rest