The Dark Side of Valuation: Valuing Old Tech, New Tech, and New Economy Companies
Product Description
(Pearson Education) A comprehensive guide to valuing technology companies, for investors, financial executives, venture capitalist, and other professionals. Includes 5 detailed case studies that cover the entire tech lifecycle, from Amazon.com to Cisco and Motorola. DLC: Valuation. Amazon.com Review
If the tech-stock swoon merely whets your appetite for this roller coaster of a market sector, and your eyes don’t glaze over at the very sight of formulas like “Return on Capital = EBIT (1 – t) / Capital Invested,” then The Dark Side of Valuation is the investment guide you’ve been waiting for. Whether considering New Economy firms at their peak or their valley, writes Aswath Damodaran, the problem has always been determining their true value with equitable dispassion. A leading expert on the topic, Damodaran begins by noting that standard corporate valuations are determined by four factors: cash flow from existing investments, growth expected from this cash flow, length of time this growth is sustained, and cost of capital to sustain it. In what he admits is not always an easy read, Damodaran then details various ways to adapt conventional valuation methods for companies that lack key traditional variables (such as profits, track records, and even competitors with which they can be compared) in order to arrive at realistic valuations. Those not scared off by charts comparing the historical risk for T-bills and T-bonds since 1928 will find this book worth a look. –Howard Rothman
The Dark Side of Valuation: Valuing Old Tech, New Tech, and New Economy Companies
Comments
5 Responses to “The Dark Side of Valuation: Valuing Old Tech, New Tech, and New Economy Companies”
This is a fairly broad introduction to valuation using Discounted Cash Flow techniques with an emphasis on growing companies. You will need to be familiar with accounting before reading this book. There are aspects of the book I like but overall I keep getting the feeling that it’s written by an academic and not a practitioner. I also don’t agree with the valuation techniques employed and I don’t see why something like Relative Valuation is even described since it is completely useless except for speculative purposes. The writing style is also a bit hazy at times and you have to read some sentences several times to decode them.
You may want to browse this book before buying. Maybe it’ll suit you more than it did me. It appears that the entire manuscript is available on the author’s webpage. Personally I prefer the books: Free Cash Flow by Georg Christy and something like Analysis for Financial Management by Robert Higgins.
PS: This review is for the 1st edition from 2001. The new edition may or may not be better.
Rating: 3 / 5
Do you need to understand the basic fundamentals of valuation? Then this is the book you need. This book will take you through step by step on how to value a company and the assumptions you need to make. By far, this book is much easier to read and understand than the book “Valuation,” written by couple of Mckinsey consultants.
Rating: 5 / 5
This is a pretty good book on the valuation of companies. At some places, it gets too tedious. For example, the author shows how to arrive at the correct discount rate used to discount cash flows to the present. It would take investors hours to calculate it, and in the end, it doesn’t really matter that much. When valuating companies, I personally do not spend too much time trying to pinpoint the exact discount rate. I use 10%, and then change it to 9% and 11% to see what the valuation results are. Then, I compare them to the trading price. It is not important or even possible to value anything with 100% precision. What is important is to get an idea of whether something is undervalued. Overall, I learned quite a bit from this book.
- Mariusz Skonieczny, author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market
Rating: 5 / 5
This is one of the most complete books on valuation in the market. The others are Valuation from Copeland and Damodaran on Valuation.
It contains concepts and technicalities, such as CFROI, PEG or how to include management options in valuation, not found in other books -though I rather that he expanded more on this-.
The only drawbacks I find in Damodaran books are the limited attention to real-world balance sheet problems one may face (ie: effects of Minority Interests in valuation) and the no-mention policy for valuing banks. In this category, Copeland’s Valuation book is better. Of course, this particular book is only meant to value tech firms !!!
If you want a really in-depth valuation book, just buy it.
Rating: 4 / 5
Excellent introduction to discounted cash flow approach to valuation. Excellent examples. But very weak on real options valuation. After recognizing that real options are mostly american, the author values them like european anyway resulting in systematic undervaluation of real options. This is a shame since much of the value of new companies come from real options. If you are already familiar with DCF valuation, then you might prefer Copeland’s ‘Real Options’ to bring yourself up to date with the latest developments in the practice of valuation.
Rating: 3 / 5