Andrew Stolz

AUGUST 6, 2020

Definition of the Arbitrage Pricing Theory. It is a model based on the linear relationship between an asset’s expected risk and return. The return on assets is determined by systematic factors such as changes in inflation , risk premiums, interest rates, etc. What Impacts the Arbitrage Pricing Theory? ER(x) = Rf + ??1

Risk-free Rate 52

Risk-free Rate Risk Premium Beta Marketability 52

Equilest

JANUARY 7, 2025

A high M-Score could indicate higher risk, warranting a higher discount rate and thus a lower valuation. It's important to remember that the M-Score is a probabilistic tool, not a definitive verdict. It's like adding a risk premium, but based on hard data rather than gut feeling.

Business Valuation 40

Business Valuation Risk Premium Finance Start-ups 40

Musings on Markets

FEBRUARY 10, 2021

There are multiple definitions that you will see offered, from it being the cost of raising capital for that business to an opportunity cost , i.e., a return that you can make investing elsewhere, to a required return for investors in that business. What is a hurdle rate for a business? as mature markets. for Ford).

Risk-free Rate 52

Risk-free Rate Risk Premium Start-ups Equity 52

Musings on Markets

JANUARY 6, 2023

When valuing or analyzing a company, I find myself looking for and using macro data (risk premiums, default spreads, tax rates) and industry-level data on profitability, risk and leverage. I do report on a few market-wide data items especially on risk premiums for both equity and debt. Debt breakdown 2.

Risk Premium 52

Risk Premium Dividends Start-ups EBITDA 52

Simply Treasury

AUGUST 2, 2022

The definition of "net equity" is as follows: equity of the company = sum of subscribed capital, share premiums, revaluation reserves, reserves and retained earnings, minus the tax value of the company's holdings in associated companies and the tax value of its own shares. Two limitations are already apparent.

Equity 52

Equity Risk Premium Banking Finance 52

Musings on Markets

MAY 24, 2021

Implicit in this definition are two key components of inflation. The first is that to define purchasing power, you have to start with a definition of what you are purchasing, and this detail, as we will see, can lead to differences in inflation measured over a given period, across measures/services.

Treasury 55

Treasury Start-ups Risk Premium Price to Book 55

Musings on Markets

JANUARY 12, 2021

If it looks like I am over reaching, I start my corporate finance class with the simple proposition that any decision that involves money is a corporate finance decision, and by that definition everything that businesses do falls under its umbrella. The links to all of these classes are at the end of this post.

Corporate Finance 52

Corporate Finance Start-ups Finance Marketability 52

Musings on Markets

JULY 22, 2021

Raising or lowering the cost of capital has an effect on value, but changing my assumptions about risk premiums, betas or debt ratios has a much smaller effect that changing assumptions that alter cash flows. The Zomato IPO clocks in at 420 pages , much of it designed to bore readers into submission.

Marketability 99

Marketability Start-ups Equity Price to Book 99

Chris Mercer

MARCH 7, 2024

The purpose and definition of the valuation engagement in accordance with BVS–I General Requirements for Developing a Business Valuation, including the applicable standard (type) and premise of value. Every appraisal must have a stated purpose and definition of the valuation (i.e., the standard of value).

Dividends 52

Dividends Appraisal Terminal Value Business Valuation 52

Musings on Markets

FEBRUARY 27, 2023

An Optimizing Tool In my second and third data posts for this year, I chronicled the effects of rising interest rates and risk premiums on costs of equity and capital. In computing the latter, I used the current debt ratios for firms, but made no attempt to evaluate whether these mixes were "right" or not.

Equity 52

Equity EBITDA Start-ups Net Debt 52

Musings on Markets

JANUARY 27, 2021

In my last post , I described the wild ride that the price of risk took in 2020, with equity risk premiums and default spreads initially sky rocketing, as the virus led to global economic shutdowns, and then just as abruptly dropping back to pre-crisis levels over the course of the year.

Start-ups 52

Start-ups Marketability Equity Treasury 52

Musings on Markets

JULY 25, 2023

The second is that what comprises default in the sovereign CDS market may not coincide with investor definitions of default , though there are approaches that can be used to back out the likelihood of default from a CDS value. in my July 2023 update) and apply this scalar to the default spread, to arrive at a country risk premium.

Risk Premium 52

Risk Premium Equity Start-ups Risk-free Rate 52

Musings on Markets

MARCH 28, 2022

Risk Surge and Economic Viability : In my last post, I noted the surge in Russia's default spread and country risk premium, making it one of the riskiest parts of the world to operate in, for any business. That is easier said than done, though, because as with all things ESG, those risks are in the eyes of the beholder.

Start-ups 116

Start-ups Alpha Marketability Risk Premium 116

Musings on Markets

JANUARY 10, 2025

Thus, as you peruse my historical data on implied equity risk premiums or PE ratios for the S&P 500 over time, you may be tempted to compute averages and use them in your investment strategies, or use my industry averages for debt ratios and pricing multiples as the target for every company in the peer group, but you should hold back.

Risk Premium 115

Risk Premium Dividends Start-ups Corporate Finance 115

Musings on Markets

JANUARY 28, 2025

Even assuming away default risk, a ten-year treasury is not risk free, with a one time horizon, and a 3-month treasury is definitely not riskfree, if you have a 10-year time horizon. Data Links Intrinsic risk free rates and Nominal interest rates Bond Default Spreads and Equity Risk Premiums

Banking 69

Banking Treasury Risk Premium Start-ups 69

Musings on Markets

FEBRUARY 18, 2025

In fact, the working definition that some commenters used for return on equity was obtained by dividing the net income by the market value of equity. As I noted at the start of this post, it was motivated by trying to clear up a fundamental misunderstanding of what return on equity measures.

Equity 52

Equity Book Value Marketability Start-ups 52

Musings on Markets

JULY 24, 2024

After the 2008 market crisis, I resolved that I would be far more organized in my assessments and updating of equity risk premiums, in the United States and abroad, as I looked at the damage that can be inflicted on intrinsic value by significant shifts in risk premiums, i.e., my definition of a crisis.

Risk Premium 75

Risk Premium Equity Start-ups EBITDA 75