Courses / Intrinsic Valuation

Intrinsic Valuation

30 Lessons | 7 Quizzes

Intrinsic valuation is the process to determine the intrinsic value of a stock by analyzing how much cash it will generate in the future and the annualized rate of return that investors require. We’ll start by learning about the concept of time value of money, which underpins every intrinsic valuation analysis. Then we’ll learn about how we would determine the annualized rate of return that investors should require on any investment. And finally, we’ll tie everything together and learn how to determine what all the future cash the company will give back to us is worth to us today given the annual return on investment we want to earn.

Key Takeaways:

  • Time value of money
  • Relationship between risk profile and required return
  • Discounted Cash Flow (“DCF”) analysis

Lessons

1. What is Intrinsic Valuation

2:09

Intrinsic Valuation is the process to determine the intrinsic value of an asset.

2. Time Value of Money

4:57

Time Value of Money is the cornerstone concept underpinning intrinsic valuation.

3. Discounted Cash Flow (DCF)

6:23

Discounted Cash Flow (DCF) is the name of the financial analysis we use to determine the intrinsic value of a business.

4. Discount Rate

3:00

Discount Rate is the rate of return that investors require in order to risk their money in the investment opportunity.

5. Weighted Average Cost of Capital (WACC)

2:21

Weighted Average Cost Of Capital (WACC) is the name of the discount rate we use in a DCF.

6. Cost of Debt

5:54

Cost of Debt is the rate of return that investors would require in order to invest in the company's debt.

7. Tax Shield on Cost of Debt

3:07

There's a Tax-Shield on Cost of Debt because interest expense paid to debt investors are tax-deductible.

8. Risk-Free Rate

3:19

Risk-Free Rate represents the rate of return on an investment with zero risk.

9. Equity Risk Premium (ERP)

3:51

Equity Risk Premium represents the additional returns beyond the Risk-Free Rate that investing in the broader stock market provides.

10. Beta

4:11

Beta measures how much an individual security’s price fluctuates in relation to the broader market.

11. Cost of Equity

4:31

Cost of Equity is the rate of return that investors would require in order to invest in the company's stocks.

12. Debt and Equity Weighting

1:57

Let's go over what numbers to use for % debt and % equity and where to find them.

13. Calculating Case Study WACC

4:00

In this lesson, we'll calculate the WACC for our PayPal case study.

14. Why is Debt Cheaper than Equity

6:39

Notice that the Cost of Debt, even on a pre-tax basis, is significantly lower than Cost of Equity.

15. Treatment of Stock-Based Compensation in DCF

2:58

While we would normally add SBC back because it's a non-cash expense, we need to exclude it here in a DCF.

16. Discount Period: End-of-Year Convention

4:48

End-of-Year Convention is a form of discount period that assumes all the cash flow comes in at the end of the year.

17. Discount Period: Mid-Year Convention

5:06

Mid-Year Convention is a form of discount period that assumes all the cash comes in evenly throughout the year.

18. Mid-Year Convention Stub Period

3:52

In practice, we rarely get a situation where there's a perfectly whole year in between our valuation date and the end of the fiscal year.

19. Calculating Present Value of Projected UFCF for Case Study

7:52

In this lesson, we'll calculate the Present Value of Projected UFCF for our PayPal case study.

20. The Concept of Terminal Value

2:52

Terminal Value represents the value of all the company’s future cash flow beyond our forecast period, as of the end of our forecast period.

21. Terminal Value - Perpetuity Growth Method

4:05

Perpetuity Growth Method assumes that the business will generate cash flow growing at a fixed rate every year, forever into the future.

22. Terminal Value - Terminal Multiple Method

6:20

Terminal Multiple Method assumes that the business is sold to an acquiror at the end of our last forecast year.

23. Present Value of Terminal Value

3:30

Remember when we emphasized that Terminal Value is the value as of the end of our forecast period?

24. Calculating Present Value of Terminal Value for Case Study

3:30

In this lesson, we'll calculate the Present Value of Terminal Value ("PV of TV") for our PayPal case study.

25. Circular Reference in DCF

2:58

There's a circular reference in DCF. We'll learn about it in this lesson.

26. Calculating Intrinsic Value for Case Study

9:13

In this lesson, we'll calculate the intrinsic value per share for our PayPal case study.

27. Margin of Safety

1:56

Margin of Safety is an investment safety cushion.

28. Future Stock Price vs. Intrinsic Value

4:26

The two metrics mean completely different things and serve different purposes in our analysis.

29. Sense Checking DCF

5:00

In this lesson, we'll learn quick ways to sense check our DCF.

30. Connecting Dots

1:59

Ever since the Corporate Valuation course, we've been on a mission to derive the Intrinsic Enterprise Value. This course wraps that up.