The hottest Valuation Substack posts right now

And their main takeaways

The dangers of relative valuation

Musings on Markets • 0 implied HN points • 27 Sep 09

Relative valuation can be risky because if one company is valued poorly, it can affect the valuations of other companies that are based on it. This is especially true for big companies like Facebook.
Using relative valuation without careful analysis can lead to mistakes and potentially create market bubbles. Just looking at averages can be misleading.
A better approach to relative valuation is to consider differences between companies and analyze the data thoroughly. This way, it can provide useful insights rather than just being a lazy shortcut.

What is Twitter worth?

Musings on Markets • 0 implied HN points • 26 Sep 09

💼 Business Valuation Investing Finance Startups Market Trends Valuation Investment Finance Startups Markets

Investors valued Twitter at $1 billion based on comparisons to Facebook's earlier valuation of $6.5 billion, despite Twitter having fewer members. This shows how startups can be valued through relative comparisons.
For Twitter to justify its $1 billion valuation, it needs to generate around $100 million annually. This could come from small fees or advertising, but many users might not pay for it.
Currently, Twitter lacks a clear way to make money and could be seen as a trend. Investors might still see value if they think it connects them to a lot of potential customers.

Commodity companies and commodity dependent markets

Musings on Markets • 0 implied HN points • 30 Aug 09

💼 Business Commodities Valuation Investing Market Analysis Risk management Valuation Commodities Investing Finance Market Analysis

The value of commodity companies directly depends on the prices of the commodities they deal with. When commodity prices rise or fall, the value of related companies changes too.
There are two main ways to predict future commodity prices: looking at historical price cycles or analyzing supply and demand factors. A mix of both methods can lead to better forecasts.
When valuing commodity companies, it's important to remain neutral about commodity price predictions. This way, investors can make their own judgments about the quality of the company's value and the market conditions.

Emerging Markets... and maturity....

Musings on Markets • 0 implied HN points • 24 Aug 09

💰 Finance Market Trends Valuation Investing Economic Analysis International Markets Emerging Markets Investing Valuation Currency Market Trends

Emerging markets are now focusing more on individual companies instead of just macroeconomic factors. This means people are paying closer attention to how well companies are run and their financial choices.
In the past, most business valuations in Brazil were done in US dollars due to distrust in the local currency. Recently, there's been a shift to using the Brazilian Reais, showing more confidence in the local economy.
Brazilian companies are increasingly focusing on domestic investors rather than just attracting foreign ones. This shows that the market is maturing and recognizing the importance of local investors.

Valuing declining and distressed companies

Musings on Markets • 0 implied HN points • 30 Jun 09

💼 Business Corporate Finance Valuation Methods Investment Strategies Market Analysis Risk management Investing Valuation Market Analysis Corporate Finance Risk Assessment

Declining companies often show stagnant or even falling revenues over time. This can signal a deeper issue, especially if it's happening across their whole industry.
These firms frequently deal with shrinking profits due to losing pricing power and competition. As a result, they might start selling off assets to stay afloat.
Declining companies might pay out large dividends or buy back stock, but this can be risky. If they have a lot of debt, it could make their financial situation even worse.

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Valuing Young Companies

Musings on Markets • 0 implied HN points • 19 Jun 09

💼 Business Startups Valuation Investment Entrepreneurship Private Equity Startups Valuation Investment Risk management Equity

Young companies often have limited data because they are just starting out. This makes it hard to accurately value them.
These companies usually don't bring in much money yet, which can lead to big losses as they try to get established.
Investors need to be careful with their money because many young companies fail. Only a small percentage survive long-term.

Keep it simple!!

Musings on Markets • 0 implied HN points • 05 May 09

💰 Finance Valuation Investing Economics Markets Analysis

Always start with the simplest explanation or model when trying to understand something. It helps make things clearer.
The simplest model can change based on what you are valuing, so think about the asset you are dealing with.
Complexity can cloud your judgment and mess up simple valuations, but sometimes you do have to make predictions, especially for growth companies.

Are accountants learning?

Musings on Markets • 0 implied HN points • 19 Apr 09

💼 Business Accounting Finance Corporate Governance Regulations Valuation Accounting Finance Valuation Corporate Governance

Employee options should be counted as expenses when given. This means they must reflect their fair value, just like other types of employee pay.
Leases should be treated like debt instead of just operating expenses. This change would provide a clearer picture of a company's financial obligations.
Research and development (R&D) costs need to be considered as capital expenses. This way, valuable assets related to innovation aren't left off company balance sheets.

Valuing brand names

Musings on Markets • 0 implied HN points • 10 Apr 09

💰 Finance Branding Valuation Marketing Finance Consumer behavior Corporate strategy Valuation Methods Market Analysis Consumer behavior

Brand names can significantly add value to a company, making it important to try estimating that value. It's interesting to think about what would happen if a company suddenly lost its brand name.
Estimating the value of a brand is easier when there are no significant quality differences among products. For example, Coca Cola and generic sodas are very similar except for the brand.
For companies like Sony or Apple, their higher profits might come from factors besides their brand names, like quality and design. So, valuing their brand may include a mix of different advantages.

The power of a brand name

Musings on Markets • 0 implied HN points • 02 Apr 09

💼 Business Branding Valuation Marketing Corporate Finance Consumer behavior Branding Valuation Marketing Corporate Finance

A strong brand name can significantly increase the price of a product, even if the product itself is the same as a less popular one. Think of how much more you pay for Mickey Mouse merchandise compared to generic items.
Companies with valuable brand names tend to have higher overall value than similar companies without strong brands. This value comes from their ability to attract customers and charge more.
When valuing a business, the brand's worth should already be reflected in the financial data, such as profits and margins. Adding an extra value for the brand can lead to counting it twice, which isn't accurate.

Dealing with Hybrids

Musings on Markets • 0 implied HN points • 19 Mar 09

💰 Finance Corporate Finance Investment Corporate Finance Valuation Investment Analysis Capital Structure Financial Instruments

Hybrids are financial instruments that combine debt and equity, making them tricky to analyze. It’s best to break them down into their components to truly understand their value.
Convertible debt is a common hybrid, where the lender can convert their loan into equity later. Treating it as just debt can mislead people into thinking it’s cheaper than it actually is.
Preferred stock is a tougher hybrid to handle and needs special consideration. It often doesn't fit neatly into the debt or equity categories like other hybrids.

What is debt?

Musings on Markets • 0 implied HN points • 07 Mar 09

💰 Finance Debt Management Corporate Finance Investment Analysis Valuation Techniques Risk Assessment Debt Management Corporate Finance Valuation Investment Analysis Risk Assessment

Debt involves fixed payments that must be made regardless of a company's financial situation. If a company doesn't make these payments, it risks losing control over its assets.
Interest payments on traditional loans and bonds are usually clearly defined, making them straightforward to classify as debt. However, items like accounts payable are trickier because their costs are often included in broader categories without clear interest rates.
Lease commitments are considered debt because they involve contractual obligations and can have legal consequences if unpaid. For many companies, lease payments represent a significant portion of their overall debt.

Low riskfree rates...

Musings on Markets • 0 implied HN points • 02 Feb 09

💰 Finance Investing Valuation Market Trends Economic Indicators Risk management Investment Valuation Economics Market Trends Risk management

Riskfree rates in the US and Europe are very low right now, which makes valuing companies tricky. Using these low rates can lead to inflated company valuations.
While riskfree rates are low, risk premiums and default spreads are high. This means we need to adjust other factors in our valuation to get accurate results.
It's important to be consistent with all the numbers used in valuation. If you use today's low riskfree rates, you should also update growth and inflation rates to match the current economic situation.

Bias in Valuation

Musings on Markets • 0 implied HN points • 28 Jan 09

💰 Finance Valuation Investing Economics Market Analysis Valuation Investments Market Analysis Risk Assessment Corporate Finance

Bias can greatly affect valuations, often making them unreliable due to preconceived notions and financial incentives. It's important to be aware of who is paying for a valuation and how that might influence the numbers.
To minimize bias, it's suggested that independent third parties handle valuations instead of the deal-makers. This could lead to more honest and accurate assessments.
Trusting famous firms for valuations isn't always enough; it's crucial to investigate the potential biases in their assessments. Always ask who paid for the valuation and what biases might be present.

Enterprise value is negative... Is that possible?

Musings on Markets • 0 implied HN points • 08 Dec 08

💰 Finance Investment Market Analysis Investment Market Analysis Equity Debt Valuation Equity Debt Business valuation

Enterprise value can be negative when a company's cash surpasses the combined market values of its debt and equity. This situation could create an arbitrage opportunity for investors.
Calculating enterprise value can be tricky because it may not include all the company's debts, like lease obligations for retail firms.
The cash figures used in enterprise value calculations can be outdated, which means they might not accurately reflect the company's current cash situation.

The New World Order: How this crisis affects valuation

Musings on Markets • 0 implied HN points • 21 Oct 08

💰 Finance Investment Valuation Economics Risk management Market Analysis

The risk of investing in stocks and corporate bonds has increased, affecting how we value them. There's a chance this is a temporary spike, but we might see higher risk levels for a couple of years.
Global economies will slow down, impacting the growth and earnings of companies next year.
Small companies may struggle or fail in this crisis, while larger companies with strong finances and advantages will likely come out ahead and be valued higher.

Mark to Market or Not to Mark to Market?

Musings on Markets • 0 implied HN points • 01 Oct 08

💰 Finance Accounting Investment Risk management Valuation Regulation

Marking to market helps investors see the current value of assets, but it can be hard for accountants to keep up with everything they need to estimate.
Fair value can mean different things depending on how you look at it, making it tricky to have a clear agreement on what it actually is.
The rules for marking assets vary by type, leading to inconsistencies where some assets are more strictly valued than others, like securities versus loans.