How do investors gauge difficult-to-value businesses?
Currency exchange rates, risk-free rate of return and sovereign ratings are among the tools in what Aswath Damodaran calls the ‘Jedi guide to ‘investing'.
And while luck does play a part, the valuation guru, in a two-hour session on The Dark Side of Valuation, explained the key aspects of looking at difficult-to-value businesses: young companies, mature businesses in transition, and declining and distressed firms.
The professor of finance at the Stern School of Business at New York University, speaking at the session organised by RBSA Advisors in Mumbai, covered everything from how to value customer-centric technology businesses like Spotify Inc and Uber Technologies Inc to how geographic concentration matters for the likes of Coca Cola Company and Infosys Ltd.
He touched upon the practice of valuing an asset first and then working backwards to arrive at the necessary calculations, stressing all along that a combination of numbers and narrative make for a perfect combination to find the right valuation.
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