Musings on Markets: Return on Equity, Earnings Yield and Market . . . While I was working on my last two data updates for 2025, I got sidetracked, as I am wont to do, by two events The first was the response that I received to my last data update, where I looked at the profitability of businesses, and specifically at how a comparison of accounting returns on equity (capital) to costs of equity (capital) can yield a measure of excess returns The second was a
Data Update 7 for 2025: The End Game in Business! I am in the third week of the corporate finance class that I teach at NYU Stern, and my students have been lulled into a false sense of complacency about what's coming, since I have not used a single metric or number in my class yet In fact, we have spent almost four sessions (that is 15% of the overall class) talking about the end game in business In an age when ESG, sustainability and
Data Update 6 for 2025: From Macro to Micro - The Hurdle Rate Question! In the first five posts, I have looked at the macro numbers that drive global markets, from interest rates to risk premiums, but it is not my preferred habitat I spend most of my time in the far less rarefied air of corporate finance and valuation, where businesses try to decide what projects to invest in, and investors attempt to estimate business value A key tool in both endeavors is a
Data Update 5 for 2024: Profitability - The End Game for Business? In my last three posts, I looked at the macro (equity risk premiums, default spreads, risk free rates) and micro (company risk measures) that feed into the expected returns we demand on investments, and argued that these expected returns become hurdle rates for businesses, in the form of costs of equity and capital Since businesses invest that capital in their operations, generally, and in
Musings on Markets: Data Update 1 for 2023: Setting the table! It is perhaps a reflection of my age that I remember when getting data to do corporate financial analysis or valuation was a chore To obtain company-level information, you needed to find its annual reports in physical form and for industry-level data, you were dependent on services that computed and reported industry averages, such as Value Line and S P The times have changed, and if there
The X Factor in Value: Excess Returns in Theory and Practice Anonymous said Hello Professor, I am waiting for your response to my question on ROCE ROE when there is asset revaluation reserve within equity IFRS allows such treatment I am a bit confused about how to assess the real ROCE ROE Your response would help me Many thanks January 25, 2015 at 11:58 AM
January 2019 Data Update 6: Profitability and Value Creation! In my last post, I looked at hurdle rates for companies, across industries and across regions, and argued that these hurdle rates represent benchmarks that companies have to beat, to create value That said, many companies measure success using lower thresholds, with some arguing that making money (having positive profits) is good enough and others positing that being more profitable than
A tangled web of values: Enterprise value, Firm Value and Market Cap The measurement questions To arrive at the market values of equity, firm and enterprise, you need updated "market" values for equity, debt and cash non-operating assets In practice, the only number that you can get on an updated (and current) basis for most companies is the market price of the traded shares To get from that price to composite market values often requires assumptions and