Musings on Markets

JANUARY 19, 2022

In computing this implied equity risk premium for the S&P 500, I start with the dividends and buybacks on the stocks in the index in the most recent year (which is known) and assume that they grow at the rate that analysts who follow the index are projecting for the next five years.

Risk Premium 80

Risk Premium Risk-free Rate Start-ups Equity 80

Musings on Markets

JANUARY 24, 2024

Understanding that riskfree rates vary across currencies primarily because of difference in inflation expectations is the first step to sanity in dealing with currencies in corporate finance and valuation. Corporate Borrowing As riskfree rates fluctuate, they affect the rates at which private businesses can borrow money.

Treasury 52

Treasury Risk Premium Start-ups Risk-free Rate 52

Musings on Markets

OCTOBER 4, 2023

Price of Risk The drop in stock and bond prices in the third quarter of 2023 can partly be attributed to rising interest rates, but how much of that drop is due to the price of risk changing? below the index value of 4288, confirming my base case conclusion.

Marketability 104

Marketability Start-ups Risk Premium Treasury 104

Musings on Markets

JULY 1, 2022

And Consequences If you are wondering why you should care about risk capital's ebbs and flows, it is because you will feel its effects in almost everything you do in investing and business. That pullback has had its consequences, with equity risk premiums rising around the world.

Marketability 88

Marketability Risk Premium Start-ups Equity 88

Musings on Markets

JANUARY 8, 2022

That said, it is my experience with markets that has also made me skeptical about the over selling of both notions, since we have an entire branch of finance (behavioral finance/economics) that has developed to explain how more data does not always lead to better decisions and why crowds can often be collectively wrong.

Risk Premium 91

Risk Premium Start-ups Market Capitalization Corporate Finance 91

Andrew Stolz

AUGUST 5, 2020

If an investor moves money from the risk-free asset into the stock market, they should expect to earn a return in excess of the risk-free rate, what is called an equity risk premium. These risks can be reduced through the diversification of a portfolio. How Do You Calculate the Capital Asset Pricing Model?

Risk-free Rate 52

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

Valutico

DECEMBER 12, 2023

We’ve integrated new emerging market transaction data from EMIS, a significant enhancement covered by major news outlets like Yahoo Finance and Asia One. New Emerging Market Data (From EMIS): What? New and existing customers can reach out to upgrade and access this valuable data that opens doors to critical insights. Why Important?

Risk-free Rate 52

Risk-free Rate Risk Premium Market Risk Marketability 52

Andrew Stolz

AUGUST 6, 2020

The return on assets is determined by systematic factors such as changes in inflation , risk premiums, interest rates, etc. Investors construct portfolios with unsystematic risks, which are well-diversified to reduce total portfolio risk. In theory, arbitrage provides investors with a high chance of success. 1 + RP1 + ??2+

Risk-free Rate 52

Risk-free Rate Risk Premium Beta Marketability 52

Simply Treasury

AUGUST 2, 2022

In early May, the European Commission unveiled its proposal for a "DEBRA" (Debt-equity bias reduction allowance) Directive, aimed at encouraging companies to finance their investments with equity and capital contributions, instead of resorting to loans (bank or other). risk premium if the company is an SME as defined by European law).

Equity 52

Equity Risk Premium Banking Finance 52

Musings on Markets

JANUARY 30, 2023

Just as rising equity risk premiums push up the cost of equity, rising default spreads push up the cost of debt of companies, with the added complication of higher default risk for those companies that had pushed to the limits of their borrowing capacity in a low interest-rate environment.

Treasury 74

Treasury Start-ups Risk Premium Equity 74

Musings on Markets

JANUARY 21, 2023

That said, when investors buy equities, it would be both irrational and illogical to settle for expected returns that are less than what you can earn on risk free or guaranteed investments, though behavioral finance suggests that both irrationality and illogic are persistent human traits.

Equity 70

Equity Risk Premium Start-ups Dividends 70

Musings on Markets

JANUARY 9, 2021

The first is that I do not have a macro focus, and my interests in macro variables occur only in the context of corporate finance or valuation issues. In the same dataset where I compute historical equity risk premiums, I report historical returns on corporate bonds in two ratings classes (Moody’s Aaa and Baa ratings).

Risk Premium 52

Risk Premium Market Capitalization Equity Start-ups 52

Musings on Markets

JANUARY 12, 2021

Corporate Finance : Corporate finance is the development of the first financial principles that govern how to run a business. It is that mission that makes corporate finance the ultimate big picture class, one that everyone (entrepreneurs, investors, analysts, business observers) should take. Of course, but with two caveats.

Corporate Finance 52

Corporate Finance Start-ups Finance Marketability 52

Equilest

MARCH 17, 2022

They give a vision of the company, which must be supplemented by other approaches to address the "true" price, which will result from the negotiation, i.e., the amount accepted by the assignor and financed by the buyer. . . Thus two companies with the same level of results but different future performance risks will have different values.

Business Valuation 40

Business Valuation EBIT EBITDA Discounted Cash Flow 40

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? Why does the risk-free rate matter?

Risk-free Rate 80

Risk-free Rate Treasury Risk Premium Start-ups 80

Musings on Markets

JANUARY 5, 2024

I have also developed a practice in the last decade of spending much of January exploring what the data tells us, and does not tell us, about the investing, financing and dividend choices that companies made during the most recent year. Beta & Risk 1. Equity Risk Premiums 2. Financing Flows 5. Debt Details 1.

Dividends 98

Dividends Risk Premium Equity Book Value 98

Valutico

AUGUST 10, 2023

Financial Literacy: Understanding SME valuation can empower entrepreneurs, investors, and anyone interested in finance, making the complex task of valuation more approachable. It needs to incorporate both the project risk and the opportunity cost, typically done using the CAPM method. What is the basic idea behind valuation?

Discounted Cash Flow 52

Discounted Cash Flow Asset-based Approach Intangible Assets Business Valuation 52

Musings on Markets

FEBRUARY 8, 2022

In this post, I will start with a working definition of riskt that we can get some degree of agreement about, and then look at multiple measures of risk, both at the company and country level. In closing, I will talk about some of the more dangerous delusions that undercut good risk taking. What is risk?

Risk Premium 67

Risk Premium Beta Start-ups Equity 67

Equilest

JULY 10, 2023

Market volatility, regulatory changes, interest rate fluctuations, tenant turnover, and project-specific risks are examples of factors that can impact a company's value. Assessing and quantifying these risks helps determine an appropriate discount rate or risk premium when calculating the company's value.

Business Valuation 40

Business Valuation Asset-based Approach Risk Premium Price to Earnings 40

Equilest

JULY 10, 2023

These factors include market volatility, interest rate fluctuations, regulatory changes, tenant turnover, and property management risks. Assessing and quantifying these risks helps determine an appropriate discount rate or risk premium when calculating the company's value.

Business Valuation 40

Business Valuation Asset-based Approach Risk Premium Price to Earnings 40

Equilest

JULY 10, 2023

Market volatility, regulatory changes, interest rate fluctuations, environmental concerns, and construction risks are some examples of factors that can impact a business's value. Assessing and quantifying these risks helps determine an appropriate discount rate or risk premium when calculating the business's present value.

Business Valuation 40

Business Valuation Risk Premium Marketability Finance 40

Musings on Markets

FEBRUARY 27, 2023

The second is that borrowing money will increase perceived default risk, and if the company is rated, lower ratings, and that too is true, but borrowing money at a BBB rating, with the tax benefit incorporated, might still yield a lower cost of funding that staying at a AA rating, with no debt in use. Do companies optimize financing mix?

Equity 52

Equity EBITDA Start-ups Net Debt 52

Valutico

SEPTEMBER 13, 2023

Recognized as firms with under 250 employees, their accurate valuation is highly important for many finance professionals. It needs to incorporate both the project risk and the opportunity cost, typically done using the CAPM method. How do I value an SME?

Discounted Cash Flow 52

Discounted Cash Flow Comparable Company Analysis Asset-based Approach Intangible Assets 52

Musings on Markets

JANUARY 6, 2023

Check rules of thumb : Investing and corporate finance are full of rules of thumb, many of long standing. When valuing or analyzing a company, I find myself looking for and using macro data (risk premiums, default spreads, tax rates) and industry-level data on profitability, risk and leverage. Operating Margin 2.

Risk Premium 52

Risk Premium Dividends EBITDA Start-ups 52

ThomsonReuters

MAY 6, 2021

The cash flows from an entire business include inflows and outflows from investing, financing, and operating activities (such as sales, collections on receivables, expenditures, and settling accounts payable). The adjustment added to the risk-free rate to arrive at the risk-adjusted rate is often referred to as the “risk premium.”

Discounted Cash Flow 52

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

Musings on Markets

NOVEMBER 9, 2021

In this post , I argued that one of the key dividing lines between the two groups was flexibility , with companies with more flexible investing, financing and dividend policies winning out over companies with more rigidity on those dimensions. for mature markets.

Start-ups 99

Start-ups Dividends Marketability Market Capitalization 99

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

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.

Start-ups 52

Start-ups Marketability Equity Treasury 52

Musings on Markets

MAY 11, 2021

With stocks, I compute this pre-personal tax return at the start of every month, using the current level of index and expected cash flows to back out an internal rate of return; this is the basis for the implied equity risk premium. It is one more reason that blindly using historical risk premiums can lead to static and strange values.

Dividends 52

Dividends Start-ups Risk Premium Treasury 52