Musings on Markets

JANUARY 19, 2022

In a post at the start of 2021 , I argued that while stocks entered the year at elevated levels, especially on historic metrics (such as PE ratios), they were priced to deliver reasonable returns, relative to very low risk free rates (with the treasury bond rate at 0.93% at the start of 2021).

Risk Premium 80

Risk Premium Risk-free Rate Start-ups Equity 80

Musings on Markets

JANUARY 27, 2022

That said, the three primary inflation indices in the US, the CPI, the PPI and the GDP deflator all told the same story in 2021: Download historical inflation numbers The inflation rate during the course of the year reached levels not seen in close to 40 years, with every price index registering a surge.

Risk-free Rate 84

Risk-free Rate Treasury Price to Book Start-ups 84

Musings on Markets

JULY 1, 2022

In 2022, as bond rates have risen, stock prices have fallen, and crypto has imploded, even true believers are questioning what the bottom for markets might be, and when we will get there. Not only will default spreads widen more for lower-rated bonds, but there will be less bond issuances by riskier companies.

Marketability 88

Marketability Risk Premium Start-ups Equity 88

Brian DeChesare

MAY 3, 2023

But people who aim for investment banking roles are very much into those bells and whistles, so questions about the DDM and other “exotic” methodologies began rolling in. To be fair, in some industries – like commercial banks and insurance within FIG – the DDM is a core valuation methodology.

Dividends 64

Dividends Terminal Value Enterprise Value Equity 64

Simply Treasury

AUGUST 2, 2022

The idea is not new to encourage companies to increase their capitalization and reduce their bank debt (partly through more recourse to the capital market - CMU project). The rate would be calculated based on a 10-year "risk-free interest" rate depending on the currency, increased by a 1% risk premium (1.5%

Equity 52

Equity Risk Premium Banking Finance 52

Musings on Markets

FEBRUARY 27, 2023

In this post, I will focus on corporate debt in 2023, keeping in mind that it was a year where the tradeoffs changed, as interest rates rose to pre-2008 levels, and putting at risk those firms that had borrowed to capacity, or even beyond, at low interest rates.

Equity 52

Equity EBITDA Start-ups Net Debt 52

Musings on Markets

AUGUST 15, 2023

In every introductory finance class, you begin with the notion of a risk-free investment, and the rate on that investment becomes the base on which you build, to get to expected returns on risky assets and investments. What is a risk free investment?

Risk-free Rate 80

Risk-free Rate Treasury Risk Premium Start-ups 80

Musings on Markets

MARCH 19, 2022

Even the ratings agencies, normally slow to act, have been moving promptly, with Moody's lowering Russia's rating from Ba2 to B3 on March 3, from B3 to Ca on March 6 and from Ca to C on March 8, and Ukraine's rating from B3 to Caa2 on March 4. Other ratings agencies have also taken similar actions.

Start-ups 100

Start-ups Risk Premium Equity Market Capitalization 100

Equilest

MARCH 17, 2022

This result over several years is then valued by discounting, at a discount rate, symboled by i, taking into account the risk that this performance will not be achieved. Business value = Typical business earnings divided by discount rate VE = Result / i. The expected annual rate of return in perpetuity. x250% per year.

Business Valuation 40

Business Valuation EBIT EBITDA Discounted Cash Flow 40

Andrew Stolz

MARCH 20, 2020

The cost of capital also reflects the riskiness of a firm which reflects the required rate of return. A firm borrows from banks or bondholders and it has to pay the interest. The cost of equity (Ke) is an expected return that a firm pays to an equity investor to compensate for the risk of investing capital.

Beta 52

Beta Capital Structure Risk-free Rate Weighted Average Cost of Capital 52

Musings on Markets

JANUARY 9, 2021

To illustrate, consider a practice in valuation, where analysts are trained to add a small cap premium to discount rates for smaller companies, on the intuition that they are riskier than larger companies. As markets and companies have moved on, many of them no longer work, but investors continue to use them.

Risk Premium 52

Risk Premium Market Capitalization Equity Start-ups 52

Musings on Markets

JANUARY 21, 2023

The premium that investors demand over and above the risk free rate is the equity risk premium , and practitioners in finance have wrestled with how best to estimate that number, since it is not easily observable (unlike the expected return on a bond which manifests as a current market interest rate).

Equity 70

Equity Risk Premium Start-ups Dividends 70

Musings on Markets

JULY 17, 2023

At the start of the year, the consensus of market experts was that this would be a difficult year for markets, given the macro worries about inflation and an impending recession, and adding in the fear of the Fed raising rates to this mix made bullishness a rare commodity on Wall Street.

Marketability 95

Marketability Risk Premium Start-ups Treasury 95

ThomsonReuters

MAY 6, 2021

A discounted cash flow approach involves projecting a stream of cash flows for an item and then applying a discount rate to those cash flows to calculate a single value or a range of values for that item. Developing Assumptions for Expected Cash Flows and the Discount Rate. The discount rate. Discount Rate.

Discounted Cash Flow 52

Discounted Cash Flow Risk-free Rate Risk Premium Intangible Assets 52

Musings on Markets

FEBRUARY 16, 2024

Intrinsic Value Effect : If the catastrophic risk is fully insurable, as is sometimes the case, your intrinsic valuation became simpler, since all you have to do is bring in the insurance cost into your expenses, lowering income and cash flows, leave discount rates untouched, and let the valuation play out.

Risk Premium 74

Risk Premium Start-ups Beta Marketability 74

Musings on Markets

JANUARY 31, 2024

In my last three posts, I looked at the macro (equity risk premiums, default spreads, risk free rates) and micro (company risk measures) that feed into the expected returns we demand on investments, and argued that these expected returns become hurdle rates for businesses, in the form of costs of equity and capital.

Equity 79

Equity Book Value Start-ups Corporate Finance 79

Musings on Markets

MAY 24, 2021

Along the way, it has been a bumpy ride, as the market wrestles with two competing forces, with an economy growing faster than expected, acting as a positive, and worries that this growth will bring with it higher inflation and interest rates, as a negative. How do you measure inflation?

Treasury 55

Treasury Start-ups Risk Premium Price to Book 55

Musings on Markets

JANUARY 27, 2021

In my last post , I described the wild ride that the price of risk took in 2020, with equity risk premiums and default spreads initially sky rocketing, as the virus led to global economic shutdowns, and then just as abruptly dropping back to pre-crisis levels over the course of the year. against developed market currencies.

Start-ups 52

Start-ups Marketability Equity Treasury 52

Appraisal Rights

JUNE 5, 2017

Further to our prior post about Delaware’s two new appraisal decisions, SWS Group was a small, struggling bank holding company that merged on January 1, 2015 into one of its own substantial creditors, Hilltop Holdings. Stockholders of SWS received a mix of cash and Hilltop stock worth $6.92 at closing. below the merger price.

Beta 40

Beta Risk Premium Capital Structure Discounted Cash Flow 40

Musings on Markets

JULY 25, 2023

Violence across the Globe When a country is exposed to violence, either from the outside or from within, it not only exposes its citizens to physical risk (of assault or death), but also makes it more difficult to run businesses within its borders.

Risk Premium 52

Risk Premium Equity Start-ups Risk-free Rate 52

Musings on Markets

MARCH 28, 2022

If these ESG revisionists are to be believed, if companies had adopted ESG early enough, there would have been no banking crisis in 2008, and if investors had screened stocks for ESG quality, they would not have lost money in the corporate scandals and meltdowns of the last decade.

Start-ups 113

Start-ups Alpha Marketability Risk Premium 113