Wrap-Up Video

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Do curso por University of Michigan

Valuing Companies

127 ratings

University of Michigan

Valuing Companies

127 ratings

Curso 4 de 4 em Specialization Introduction to Finance: Valuation and Investing

This course is a theoretically sound and practical exposure to valuation. As the final course of the Specialization, it will be useful to anyone in executing or critically evaluating company analyses conducted by experts. We have put together everything you have learned in the first three courses, modified frameworks and first applied them to carefully crafted real world situations (or mini-cases), and then presented you with a capstone project to value one of the most well-known companies of the past three decades. This Capstone Project will make you appreciate how finance is both a science and an art form.

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Module 3

This module/week will be spent on a short wrap up video of the course and time for assimilation and review by learners to take the final exams. In the past, learners have really valued this time and hence it is built into this new structure/platform as well. Please note there are two finals that cover materials of Modules 1 & 2, and you need to attempt both.

Wrap-Up Video10:49

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Gautam Kaul
Professor of Finance & Fred M. Taylor Professor of Business Administration
Ross School of Business

Welcome.

As I have done throughout this specialization,

I do an introduction video and then I do a wrap up.

This wrap up is a new course four, which will be the last course

In the sequence, so congratulations if you reached this far.

What I'd like to do is talk about the issues you've learned and what is left.

And if you humor me, I'll talk about life in general towards the end.

So congratulations,

you have just finished valuing companies which is the fourth course.

Recall as I have mentioned often in the syllabus in the previous

introductory video.

This is a new version of course four and quite different than before.

So one of the things we have done is we have put together

everything we have learned sequentially and

building on each other already in courses one, two, and three.

I generally believe you couldn't have done course four successfully, or

you could have but

not learned as much, unless you knew the content of courses one, two, and three.

And that's what I love about finance, it takes fundamental Legos,

building blocks, courses one and two.

Builds on them to make them more real-world frameworks, and

then applies everything in this course.

So you've learned everything.

You have developed a deep understanding of how to value companies, and

using multiple methods.

You must have realized that methods are different, because life is tough.

So a lot of the differences in the methods are not conceptual so

much as practically oriented.

Why is that the case?

Because the context and the availability of information changes.

So you must have seen, the methods you use are eventually based on the same

framework, including compatibles and including multiples.

They are all based on the fundamentals of finance.

However, the method you use depends on what information you have and

the context you have.

So one of the things I focus on this specialization which I'm not,

which is that you are valuing an existing companies.

One thing I have not done,

is I haven't started valuing companies that are really new.

So I plan to do things like that in the future,

because the methods are the same but the applications are different.

Why?

Because it's a different context.

When a new company starts, first of all you don't have much information.

If it's absolutely new,you don't have a comparable.

So you have seen this repeatedly happen in the IPOs recently,

and I will talk about that at some point.

Applied all knowledge to the real world company.

That was the mega example I did.

So I'm doing this wrap up just before you do the final capstone project,

because I want you to get prepared for the final exam.

What are the main takeaways evaluation?

Remember, value comes incrementally, value's never absolute.

That's why throughout,

always think of the additional stuff you are adding in cash flows, right?

The second thing is, you've learnt that value is always relative.

Why?

Because if I didn't know the price of an existing product,

it would be very tough for me to tell the price or fix the price,

or determine the price of a new product, right?

It kind of goes into the whole realm of, if I didn't know how to value ketchup,

I will know how to value something that looks like ketchup, right?

So we did that bears and shares, and we did a lot of that in our exercises.

Value come from the future,

now this is something that is more profound then it sounds.

So value doesn't come from the past, because the past in some sense is over.

However, when you're determining the future, you're projecting the cash flows,

you're projecting the business of the future,

you're projecting life in the future.

It's difficult, but it also a lot of the information comes from the past.

So the past is in some senses gone, but

extremely important to predicting the future if you can.

What is the difference between valuation taught in this course and

valuation taught off in the common world?

And I think this is important.

Value's always created on

the left side of the balance sheet which is the real assets.

Now determines how you're looking at the balance sheet.

But to me, financial side of balance sheet is unimportant

unless you figured out what your real idea is.

That's very important to know.

Second thing you've learned is, because value shouldn't depends on the future

work of say a project does for you in the future of the costumers and suppliers.

It is very risky, because you don't know what's going to happen.

So risk and return always go together.

It's a very, very important underlying thing.

And I've said this before, most often even the popular press looks at only return.

Well that's kind of one side of the picture, and it's very important to

recognize that typically in life high returns come only by taking high risk.

So what is valuation?

Putting all of them together and making it as

real world as possible using alternative methods of valuing companies.

And projects are very similar to company valuation,

because a collection of projects are the company.

And of course my favorite part is there's love in life but

there is only one thing, number two and that is finance.

So I hope you learnt not just the practice of finance,

the futility of finance, but how to think deeply.

And now I will talk a little bit about the final exam.

I don't like exams, I've never liked them.

But it's a way of judging how well you've done.

So the final, you have to just stay up to date.

So if you reached this point, done all assignments, stayed on top of stuff,

finals will be testing you on stuff, you should know, not new stuff.

That's just not my philosophy.

The second is, if you've done all the assignments just go back to them and

figure out where did you make the mistakes.

And try to go and brush up the material.

Finally, relax.

As I say often, you know how to swim.

And you know the force will be with you always, so

don't take the final too seriously.

Just show up and that will be it, you'll do well.

The more important part is, you'll have to do the capstone project.

Especially if you want a certificate, you'll have to do well on it too.

You can always do all of this stuff, and have watch content for free.

But now in order to submit assignments,

you'll have to do them by the certificate method.

So the capstone project is a big exercise where we put all of it together,

and in terms of a real world company.

I actually had a lot of fun creating it.

And I hope you enjoy it too.

Yes, finally, what next?

So you've done the capstone project.

You've done great.

You feel comfortable.

You've gotten certificates.

What next?

And I will talk a little bit about the future.

I would first start with, there's no reason not to do more finance.

I actually plan on developing modules that go beyond what I've taught in

this specialization, because as I said there are so

many special topics that go beyond traditional valuation.

Important topics that you need to know in the new world.

So one is the notion of global valuation.

How does it matter?

How you value stuff across boundaries?

How do you do that?

The second more important topic that's emerged in recent

times is NPV our favorite method of valuing stuff?

Really, that cool?

Answer is yes, it's really methodical.

It's very useful, and it's very applicable to standard situations that

are pretty advanced, right?

So if you did the capstone project or

you're going to do it, it is a very advanced application.

However, what NPV assumes is a certain

level of kind of expectation that materialize.

It doesn't take into account uncertainty at a fundamental level.

And we'll talk about that in future applications of option pricing and

rail option, and fascinated by that.

So hopefully you can learn that.

Rich applications is something else I'm really, really in to.

So for example I have taught two course on impact investing and

sustainability, and climate change.

Why do I do that?

One, of course is I'm deeply interested in these issues.

But the second one, which won't surprise you, I think finances so much to offer and

it's unfortunate that we use it mainly for standard valuation.

So I hope to come up with new applications of finance.

But most importantly perhaps, I would encourage you to keep learning.

And I think these days with MOOCs and with all these developments,

I'm fascinated by the learning opportunities I have.

After all,I know a little bit of finance but

I don't know most of what life has to offer.

And that's fascinating, right?

You can seat at home, watch, have a cup of coffee, or

a glass of wine if you so choose, and learn something on your own.

And I tried to create experiences that are both enjoyable and painful.

The enjoyable part hopefully are the videos, and

the painful part are the assignments.

But keep learning and keep doing good.

May the force be with you, and hopefully see you in the future.

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