You can get it out of the footnotes for many companies, since they break down when their debt comes due. If you cannot find it, you have to make your best guess. If you are unwilling to do that, just assume a maturity of zero and your book debt = market debt.
After going through this particular portion, I have gradually developed the greatest temptation to dump all this theory and seek an easy demonstrable, plausible way out to calculate cost of capital... Amen
How will this works when you are valuing a bank? Deposits will go as supply of credit which wont be a part of debt. So when we are valuing a bank in order to get cost of debt we effectively need to look at other debts like subordinated debt?
Hi Professor Damodaran, thank you so much for your helpful videos- as a student who does not have access to finance courses at my university, your generosity is very appreciated. I had a quick question- I understand the intuition of adding a country risk premium to the pretax cost of debt, however, I think in your video explaining the cost of equity calcuation, you also added a country risk premium. Just curiously, should you only include the country risk premium only once (in either the pretax cost of debt or the cost of equity) instead of including it in both the pretax cost of debt and equity to avoid double-counting it? Thank you so much!
I think that CRP should be included in both, the cost of debt and the cost of equity. Imagine, you can invest in equities outside the USA and demand CRP for it. But you can also invest in bonds outside the USA where you will also demand the CRP. In conclusion, both parties, creditors and equity holders, demand CRP for investing outside the USA. It's not double counting because these are the costs of two different parties with different exposures to risk in a company, except for the country risk. This is just my opinion tho.
Tax deductibility seems to be one of the best criteria to differentiate between "debt" and "equity" in the borderline cases (i.e., mezzanine capital) like the preferred stock or subordinated debt. However, the income tax is a comparatively new innovation. The U.S. federal income tax was introduced a century ago, while state income taxes were levied for some time before then. I am interested in learning what was the fundamental difference between the "senior" equity (e.g., guaranteed stock) and subordinated debt (e.g., convertible debentures) before the introduction of the income tax in the U.S., if any.
Since Embraer gets most of its revenue in $ (USD), it is unfair to attach the entire country risk of Brazil to Embraer. So, he has come up with the 2/3rd proportion by looking at companies similar to Embraer getting majority of their earnings in US $. The estimation of 2/3rd has not been shared.
Wrt adding the country risk premium to the cost of debt, is this only for our own synthetic rating? Assuming that if we use a rating's agency or bond this macro level risk is already priced in. Or do we need add some country level risk in both scenario's?
Correct me if i am wrong, so when the Discounts missed from getting credit from suppliers if explicitly shown. Is it added to financing expenses, so hence reduced from earnings ? , Hence considered as debt when explicitly shown
Thanks a lot for the videos! These are great! I will appreciate if someone can help answer this question. If a company has debts issued in different currencies, should we need to do a weighted average of those cost of debt?
is there any video that will walk me through a valuation? I don't quite understand how I am supposed to do this in excel and the numbers I need from the 10-k.
But why taking the debt in market value, if the company issuer of the bond will pay the full face value to bondholder at maturity(if the bond was issued at par and with fixed interest rate). I think the market value might interest the bondholder and not the issuer.
I am sorry I had misunderstood you. It happened, because you asked about the "market value", not just "value". I tend to assume that market is always about pricing :-)
I think, in the listed entity market, there are information about EV/EBIT by sector. You can choose this information. You know the EBIT of the unlisted entity, then you can obtain the EV, and finally, because EV=market val + debt - cash, you can obtain the market val. Serves you?
Sir, When you are calculating the cost of capital for Embraer, the country risk premium you have used to Calculate cost of equity is different from CRP you have used to calculate the Cost of debt, Why is that ....CRP for debit is 6 % and CRP for equity is 7.89%
1 is equity risk premium, which is affected by the relative vol of index to their gov bonds. the debt CRP is a cds spread, which reflects only credit risk.
Sir, I'm from the Philippines. I would like to ask if the ratings data that you presented here are still applicable today since these data were in 2003 and 2004.
You can get it out of the footnotes for many companies, since they break down when their debt comes due. If you cannot find it, you have to make your best guess. If you are unwilling to do that, just assume a maturity of zero and your book debt = market debt.
Have you made the slides of all the power points, from this series of lectures, available anywhere online?
they are somewhere. A free online course of his
@@nicolasb.8645 pages.stern.nyu.edu/~adamodar/New_Home_Page/webcastvalonline.htm
Used to think why you were one of the most respected figure in the field of valuation. Now I know the reason.
Regards from India
I am really indebted to you Sir Aswath Damodaran for shooting these videos and making them public.
So what is the cost of your debt from professor damodaran?
Just kidding haha
Is it tax deductible? Because I am too.
After going through this particular portion, I have gradually developed the greatest temptation to dump all this theory and seek an easy demonstrable, plausible way out to calculate cost of capital... Amen
" Bad things happen to you " gangsta professor. Hands down but he is the best 🔥
Thanks professor Damodaran! Great and simplified explanations. Thanks for sharing !
Thanks a lot for these videos. The explanation is superb!
wow! so much knowledge for free, Amazing! Watching it in Mar 2018!
Thank you Dr. Damodaran. Learning an invaluable lession.
How will this works when you are valuing a bank? Deposits will go as supply of credit which wont be a part of debt. So when we are valuing a bank in order to get cost of debt we effectively need to look at other debts like subordinated debt?
Hi Professor Damodaran, thank you so much for your helpful videos- as a student who does not have access to finance courses at my university, your generosity is very appreciated. I had a quick question- I understand the intuition of adding a country risk premium to the pretax cost of debt, however, I think in your video explaining the cost of equity calcuation, you also added a country risk premium. Just curiously, should you only include the country risk premium only once (in either the pretax cost of debt or the cost of equity) instead of including it in both the pretax cost of debt and equity to avoid double-counting it? Thank you so much!
I think that CRP should be included in both, the cost of debt and the cost of equity. Imagine, you can invest in equities outside the USA and demand CRP for it. But you can also invest in bonds outside the USA where you will also demand the CRP.
In conclusion, both parties, creditors and equity holders, demand CRP for investing outside the USA. It's not double counting because these are the costs of two different parties with different exposures to risk in a company, except for the country risk.
This is just my opinion tho.
Tax deductibility seems to be one of the best criteria to differentiate between "debt" and "equity" in the borderline cases (i.e., mezzanine capital) like the preferred stock or subordinated debt. However, the income tax is a comparatively new innovation. The U.S. federal income tax was introduced a century ago, while state income taxes were levied for some time before then. I am interested in learning what was the fundamental difference between the "senior" equity (e.g., guaranteed stock) and subordinated debt (e.g., convertible debentures) before the introduction of the income tax in the U.S., if any.
How did you come up with 2/3 portion of the country risk for the Embraer?
Since Embraer gets most of its revenue in $ (USD), it is unfair to attach the entire country risk of Brazil to Embraer. So, he has come up with the 2/3rd proportion by looking at companies similar to Embraer getting majority of their earnings in US $. The estimation of 2/3rd has not been shared.
@@anubhav_lal its a revenue weighted calculation i believe
Wrt adding the country risk premium to the cost of debt, is this only for our own synthetic rating? Assuming that if we use a rating's agency or bond this macro level risk is already priced in. Or do we need add some country level risk in both scenario's?
Correct me if i am wrong, so when the Discounts missed from getting credit from suppliers if explicitly shown. Is it added to financing expenses, so hence reduced from earnings ? , Hence considered as debt when explicitly shown
Talking about valuation Damodaran is God and his book "Investment Valuation" is the Bible.
hi, great vid......just still don't understand where to find the marginal tax rate. if you know please reply thank you
can use the effective tax rate disclosed in the financial statements
How did you come up with average maturity period? Because it is not given in any financial statements. Anyone.
Thanks a lot for the videos! These are great! I will appreciate if someone can help answer this question. If a company has debts issued in different currencies, should we need to do a weighted average of those cost of debt?
is there any video that will walk me through a valuation? I don't quite understand how I am supposed to do this in excel and the numbers I need from the 10-k.
But why taking the debt in market value, if the company issuer of the bond will pay the full face value to bondholder at maturity(if the bond was issued at par and with fixed interest rate). I think the market value might interest the bondholder and not the issuer.
we're valuing the company which will include both the equity and the debt.
Hi Sir, is there any video explaining about how to calculate cost of equity?
watching this on 6/12/2021 u are amazing Sir
Someone have the spanish traduction?
Sir if I m valuing an unlisted entity, how would I get market value of equity.
Using "earnings" multiples derived from the publicly traded companies and applying appropriate discounts for lack of liquidity, size, etc.
+Alex Uriatin dear friend I am talking about valuing it and not pricing it.
I am sorry I had misunderstood you. It happened, because you asked about the "market value", not just "value". I tend to assume that market is always about pricing :-)
I think, in the listed entity market, there are information about EV/EBIT by sector. You can choose this information. You know the EBIT of the unlisted entity, then you can obtain the EV, and finally, because EV=market val + debt - cash, you can obtain the market val.
Serves you?
If you have got the answer then please msg these
Amazing !!!!
excellent! excellent! excellent!
Sir, When you are calculating the cost of capital for Embraer, the country risk premium you have used to Calculate cost of equity is different from CRP you have used to calculate the Cost of debt, Why is that ....CRP for debit is 6 % and CRP for equity is 7.89%
1 is equity risk premium, which is affected by the relative vol of index to their gov bonds.
the debt CRP is a cds spread, which reflects only credit risk.
@@ninetyninecent hello ,what is the calculation for the country default spread (6.01%) in the cost the of debt ? Thanks.
@@hugosilva2999it’s based on the country’s credit rating
Sir, I'm from the Philippines. I would like to ask if the ratings data that you presented here are still applicable today since these data were in 2003 and 2004.
❤
The gap between CoD and CoE is very minimal.
Wonderful 😃😂
Thanks
Anyone in 2024?
watching this on 6/12/2021 u are amazing Sir