I have made the same comment on the You Tube post so please feel to ignore one of them. It has been a few years since I completed your class so perhaps my memory is playing tricks on me. Can you please clarify your latest thinking on a company's terminal ROIC. I thought that you taught me that most companies will not achieve a terminal ROIC above their terminal cost of capital. The exceptional companies which do have a higher ROIC will not be above 12% (as a rule of thumb). I note that you have given NVIDIA a terminal ROIC of 20%.
Can you also clarify the cost of capital element in your Monte Carlo simulation. Did you mean to vary the initial cost of capital? I would have thought that the valuation would be far more sensitive to the terminal cost of capital.
The rule of thumb is that it be brought down towards the cost of capital. It is true that I generally try to set it to within 5% uof the cost of capital, but I do have some flex, where I increase it to allow for high growth spilling over past year 10.
Since market size is one of the key building blocks in ascertaining the value, I would like to know the parameters that you use to judge the efficacy of the various estimates that is floated around?
Thank you for so generously sharing your knowledge. It is a pot of gold for me as a private investor and I am learning a lot.
One question: Why is the terminal year FCFF value only 10. 6 billion? Looks very low. Am I overseeing something? I could not find the story to that figure in your elaborations...
Excellent Post. What software do you use to run the simulation/Monte Carlo? I am interested in that capability.
Thank you.
Crystal Ball. It is an Oracle product.
Excellent. Thanks.
Hi Professor Damodaran,
I have made the same comment on the You Tube post so please feel to ignore one of them. It has been a few years since I completed your class so perhaps my memory is playing tricks on me. Can you please clarify your latest thinking on a company's terminal ROIC. I thought that you taught me that most companies will not achieve a terminal ROIC above their terminal cost of capital. The exceptional companies which do have a higher ROIC will not be above 12% (as a rule of thumb). I note that you have given NVIDIA a terminal ROIC of 20%.
Can you also clarify the cost of capital element in your Monte Carlo simulation. Did you mean to vary the initial cost of capital? I would have thought that the valuation would be far more sensitive to the terminal cost of capital.
Many thanks & best regards, Rob
The rule of thumb is that it be brought down towards the cost of capital. It is true that I generally try to set it to within 5% uof the cost of capital, but I do have some flex, where I increase it to allow for high growth spilling over past year 10.
Thanks Professor, always enjoy reading your posts.
Since market size is one of the key building blocks in ascertaining the value, I would like to know the parameters that you use to judge the efficacy of the various estimates that is floated around?
Dear Prof Damodaran,
Thank you for so generously sharing your knowledge. It is a pot of gold for me as a private investor and I am learning a lot.
One question: Why is the terminal year FCFF value only 10. 6 billion? Looks very low. Am I overseeing something? I could not find the story to that figure in your elaborations...
Best wishes,
Tom