Valuation
Valuation is the process of determining the intrinsic or fair value of an asset. It sits at the intersection of accounting, finance theory, and judgment. This module covers the three main families of valuation approaches used in practice and in research.
Module Overview¶
Week | Topic | Tools |
|---|---|---|
1–2 | DCF Fundamentals | Free cash flow, WACC, terminal value |
3–4 | Multiples and Comparables | EV/EBITDA, P/E, sector analysis |
5 | Option-Based Valuation | Black-Scholes, real options intuition |
A Framework for Thinking About Value¶
Any asset is worth the present value of the cash flows it is expected to generate, discounted at a rate that reflects the risk of those cash flows. This simple statement hides enormous complexity:
What cash flows? Free cash flow to firm, equity, dividends?
What discount rate? CAPM, APT, build-up method?
What growth rate? Stable, two-stage, three-stage?
What terminal value? Gordon Growth Model, exit multiple?
Multiples-based valuation sidesteps some of these questions by anchoring to market prices of comparable firms, but introduces different challenges around comparability and circular reasoning.
“Price is what you pay. Value is what you get.” — Warren Buffett