Aswath Damodaran Session 17: Pricing – Distribution and Determinants

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Aswath Damodaran Session 17: Pricing – Distribution and Determinants
Published on Nov 9, 2015
Aswath Damodaran Play Quizzes 4

In today’s class, we extended our analysis of multiples by first looking at PE and PEG ratios, then moving on to PBV ratios and finally examining enterprise value multiples: EV/Invested Capital, EV/EBITDA and EV/Sales. In particular, we noted that the drivers for EV multiples are analogs of the equity multiples: growth in operating income replacing growth in net income, reinvestment rates replacing payout ratios, ROC replacing ROE and cost of capital replacing cost of equity. There is a simple way to find the companion variable (the key driver) for a multiple. With an equity multiple, you can get this variable by dividing the net income by the denominator of the multiple. With an enterprise value, you divide after-tax operating income by the denominator of the multiple. With the EV/Sales ratio, this yields the after-tax operating margin as the determining variable. We used that measure to evaluate the value of a brand name, by comparing the pricing of Coca Cola with its current operating margin with its value with a generic margin.
Start of the class test: www.stern.nyu.edu/~adamodar/pdfiles/eqno­tes/tests/relval1test.pdf
Slides: http://www.stern.nyu.edu/~adamodar/po…
Post class test: http://www.stern.nyu.edu/~adamodar/pd…
Post class test solution: http://www.stern.nyu.edu/~adamodar/pd…

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