Lesson 1 Notes


  • This course is about the valuation of assets.

  • Is valuation an art or a science?
    • In a science if you get the i/p right, you get the o/p right. valuation is not a science.
    • Within art, there are learnable elements but you need to have an innate ability for the same.
    • Valuation is a craft, you learn by doing. The more you do it, the better you get at it.
  • 5 broad themes of the class :
    • Valuation is a craft.
    • Valuation is simple & universal. [ Start with mature publicly traded companies, and then across the life cycle, startups, private businesses, then individual assets, differences in valuation and pricing.]
    • Two different ways of putting a number on an assets, you can value the asset or you can price it. Value comes from cashflow, growth and risks. Price is driven by demand and supply, market moods etc. When you put a number on an asset, you need to ask if you are valuing it or pricing it. [How to price things better?]

    [Q : Are you a number cruncher or a storyteller? I am a number cruncher.]

    • A Valuation is both about numbers and stories. Good valuation connects stories to numbers. Every number has to have a story attached and every story has to have a number backing it up.
    • If you are valuing something, you should be willing to act on it. You need to have faith in your valuation.
  • Pre-requisites :
    • Know how to read financial statement.
    • Statistics
    • Finance [Risk and return models, present value, corporate finance]

Valuation of the week - Star Wars

  • He takes up the star wars franchise example.
  • He starts with lucas films, and the 4th episode(the first star wars movie) and then the follow up movies.
  • One thing I’ve personally never thought about considering when it comes to movies like these is the add-ons. He goes on to talk about VHS/DVD, Toys and Merchandise, Gaming, Books and TV series.
  • For every dollar in the movies, the add-ons made 4$ or so is his evaluation of the add ons and their revenue.
  • After Disney bought lucas films for 4 billion dollars, they announced a rehash i.e they announced another follow up trilogy.
  • Now he goes onto predict the money that will be reaped from these movies and the add ons.
  • The movies themselves would earn them shy of 3.5 billion dollars and the add on after taking optimistic numbers, he finds that the entire system will earn disney about 10 billion dollars, which makes lucas films a very very good acquisition.
  • But the thing to observe here is, Illegal revenues aren’t considered and other kinds of add ons and similarly the projection of 10 billion dollars is based off an assumption of the revenues.
  • He also considers the taxes that are levied on the revenues.
  • This angle of thought of looking at a company from multiple metrics makes sense and is very intriguing. and that acquisitions can be thoughts of as something that leads to over paying for growth. sometimes like in the case of this one, your business scales and does you good.
  • You can find the article here.
  • What do i think about the valuation i would provide to star wars? I think I will peg it at 11 billion dollars. One thing not considered in this case is Disney plus and that the rest of the movies are performing better than expected.
  • Always consider taxes and margin when thinking about final revenue.