I still didn't get this that when we say a public company is more diversified than a private one, which diversification we are taking about? Is it about the shareholders?but how come it has any bearing on the risk profile of the company? When Mr damodaran was calculating cost of equity of bookscape, he added an additional spread for the firm specific risk. But why does it only come for a private company and not for a public company? If anyone can please explain.
Shareholders of public companies are predominately institutional investors (e.g. mutual funds) and are assumed to be diversified in their investments. Shareholders of private companies are most of the time not diversified. When calculating the risk of investing in a business, beta is sufficient for mutual funds as they have already eliminated idiosyncratic risk by diversifying. Non-diversified investors (typically for private businesses) however have to add a layer of risk when looking at the investment given beta only takes into account the risk that cannot be diversified away.
@@sebdewarrat Thank you very much for making me to think about it at depth. Let me explain how I have understood it. Let's say I am planning to invest in a company. First scenario it is a public company. It's equity is held by a mutual fund. God forbid the CEO of the mutual fund dies, it wouldn't take that much a hit than if the company is a private one and if the CEO, who also happens to be the sole equity holder, dies. Now I see how the idiosyncratic risk affects more a private company than to a public one and therefore should be considered according. Thanks.
Both. If it's interest bearing then it matters in terms of firm valuation. If you're gonna calculate the market value of debt then just put the debt due in one year. His video on Home Depot market value of debt helps explain this so very clearly.
Thank you so much Mr Damodaran. These are great lessons.
This is the first time I've heard of actually calculating and using the market value of debt for the cost of capital
Thank you so much professor
I still didn't get this that when we say a public company is more diversified than a private one, which diversification we are taking about? Is it about the shareholders?but how come it has any bearing on the risk profile of the company? When Mr damodaran was calculating cost of equity of bookscape, he added an additional spread for the firm specific risk. But why does it only come for a private company and not for a public company? If anyone can please explain.
Shareholders of public companies are predominately institutional investors (e.g. mutual funds) and are assumed to be diversified in their investments. Shareholders of private companies are most of the time not diversified. When calculating the risk of investing in a business, beta is sufficient for mutual funds as they have already eliminated idiosyncratic risk by diversifying. Non-diversified investors (typically for private businesses) however have to add a layer of risk when looking at the investment given beta only takes into account the risk that cannot be diversified away.
@@sebdewarrat Thank you very much for making me to think about it at depth.
Let me explain how I have understood it.
Let's say I am planning to invest in a company. First scenario it is a public company. It's equity is held by a mutual fund. God forbid the CEO of the mutual fund dies, it wouldn't take that much a hit than if the company is a private one and if the CEO, who also happens to be the sole equity holder, dies.
Now I see how the idiosyncratic risk affects more a private company than to a public one and therefore should be considered according.
Thanks.
What exactly are the debt ratios at 8:36 and where does he get them?
How come disney's debt is 14288 million on balance sheet , but as per table it is 12,139 million
I have the same question. Can anyone answer? Much appreciated
To calculate the weight of debt, should we use only long term debt or all interest bearing debt ( short-term and long-term) ?
Both. If it's interest bearing then it matters in terms of firm valuation. If you're gonna calculate the market value of debt then just put the debt due in one year. His video on Home Depot market value of debt helps explain this so very clearly.
someone have the spanish traduction?