val.

what is val.

Val is modelled after Professor Aswath Damodaran's spreadsheet. It streamlines company valuation by gathering key data automatically, so you can focus on what matters most: forecasting assumptions.

the model

Val uses a Discounted Cash Flow model that estimates expected company cash flows and discounts them to present value.

Cost of Capital

The discount rate is determined by Cost of Capital, representing the return required to justify the initial investment. It is a weighted average of Cost of Equity and Cost of Debt and decays over time as mature companies approach a long-run average rate.

Cost of Equity combines Risk-Free Rate, Beta, and Equity Risk Premium. Val uses a bottom-up approach to relever Beta from Unlevered Beta, and includes country risk premium where relevant.

Cost of Debt reflects the long-term borrowing rate, including default risk and interest-rate conditions. Following Professor Damodaran's approach, Val computes synthetic ratings using Interest Coverage Ratio (EBIT / Interest Expenses).

Growth

Val gathers consensus growth estimates from multiple sources, while still encouraging personal forecasts.

To reduce unjustified growth assumptions, Val requires growth to be earned through reinvestment. Concretely, growth depends on both Reinvestment * Return on Invested Capital and growth from efficiency improvements.

To keep terminal assumptions realistic, growth decays toward the Risk-Free Rate so the company does not outgrow the economy in perpetuity.

Final firm value combines the present value of projected cash flows and terminal value, adjusted for failure probability, debt, minority interest, employee options, cash, and non-operating assets.

the inputs

  • Revenues: Current-year operating revenues. Adjust only when operating revenue is misclassified or a business segment is missing.
  • Next Year Revenue Growth, Operating Margin, and Compounded Annual Revenue Growth: The primary forecast assumptions.
  • Target Pre-tax Operating Margin: Expected efficiency level, typically anchored to industry averages.
  • Year of Convergence for Margin: Time needed to reach target operating margin.
  • Discount Rate: Use when applying an externally derived discount-rate approach.
  • Years of High Growth: Years before mature-state growth dynamics begin.
  • Sales/Capital: Growth efficiency ratio, defaulting to industry averages.
  • Probability of Failure: Default risk estimate. By default, Val derives this from synthetic rating and assumes 50% of book value is salvageable in failure.
  • Value of Options: Employee options to account for in final equity value.
  • Adjust R&D Expense: Following Professor Damodaran, R&D is capitalized as an asset rather than expensed. Learn more here.

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