Showing posts with label valuation. Show all posts
Showing posts with label valuation. Show all posts
Friday, April 4, 2008
Monday, March 17, 2008
Forecasting is tough work...every guy has his rainy day :)
Here is Jim Cramer's take on Bears (funny the company has a bear in its name...from $180 - 0 (ok $2) in one year ...that is real bear stuff) one week ago...After all Analysts are humans...they are bound to mistakes (however bad it might be)
Found this link from pmarca's blog ...thanks Mark
Found this link from pmarca's blog ...thanks Mark
valuing financial companies
Bears and Stearns sbeen gobbled up for a paltry$2/per share by JP Morgan (Valuation of around $250 Million) today compared to its last trading price worth billions of dollars of market cap...on account of significant liquidity risks ----that posed a threat of shutting down the company if not bailed by an outsider...the trouble with Bears and Stearns was it dealt with too much mortgage securities....
That brings us to the fundamental question of taking into account the quality of assets( and balance sheet) while valuing an investment bank(or bank's or NBFC's ) .
After being in the financial indstry for two years..(in india)...I know that most of the finance companies act as punters (I touched on this industry characteristics way back in 2007)....
1) Very open minded credit screens( with loopholes that helps anybody to get loans)
2) lack of quality people at ground level to assess credit risks
3) stiff marketing targets(that drives every mktg guy crazy enough to sanction loans)
4) a Fundamental lack of accountability (which i guess is global)
Given all these factors...Banks might look good on paper but their true quality could be found out by the way the number of NPA's they have in their balance sheet...so keep a close eye for these numbers when you come across a financial institution....
1) Portfolio Mix
2) NPA accounted (a growing percentage generally smells trouble)
3) The kind of Equity mix involved with these securities (the higher the better)
Taking these factors into account ....
I find that banks exposed to the followig assets might face significant risks going forward.
1) Personal loans (on account of their lack of security to back-up on)
2) Housing loans (due to highly leveraged positions by employees in certain industry (IT in particular) that outstrips salary levels)
I believe commecial vehicles and construction equipment portfolios are relatively stable due to the reletively shortly payback cycle and the underlying quality of the assets to generate volume)
In short a business is like a human being (career , drive,education etc matters )just as generating profit matters for business...but at the end of the day balance sheet quality is vital (Health for human can be taken as a suitable anology) ...without health people die as organizations die without proper balance sheet quality...
However, the trouble with balance sheet problems faced by financial institutions are ...failures occur when things are not good (meaning failures are driven by events ..such as the recent mortgage chaos in the US)...mor of how to find if times are good or bad in another post
That brings us to the fundamental question of taking into account the quality of assets( and balance sheet) while valuing an investment bank(or bank's or NBFC's ) .
After being in the financial indstry for two years..(in india)...I know that most of the finance companies act as punters (I touched on this industry characteristics way back in 2007)....
1) Very open minded credit screens( with loopholes that helps anybody to get loans)
2) lack of quality people at ground level to assess credit risks
3) stiff marketing targets(that drives every mktg guy crazy enough to sanction loans)
4) a Fundamental lack of accountability (which i guess is global)
Given all these factors...Banks might look good on paper but their true quality could be found out by the way the number of NPA's they have in their balance sheet...so keep a close eye for these numbers when you come across a financial institution....
1) Portfolio Mix
2) NPA accounted (a growing percentage generally smells trouble)
3) The kind of Equity mix involved with these securities (the higher the better)
Taking these factors into account ....
I find that banks exposed to the followig assets might face significant risks going forward.
1) Personal loans (on account of their lack of security to back-up on)
2) Housing loans (due to highly leveraged positions by employees in certain industry (IT in particular) that outstrips salary levels)
I believe commecial vehicles and construction equipment portfolios are relatively stable due to the reletively shortly payback cycle and the underlying quality of the assets to generate volume)
In short a business is like a human being (career , drive,education etc matters )just as generating profit matters for business...but at the end of the day balance sheet quality is vital (Health for human can be taken as a suitable anology) ...without health people die as organizations die without proper balance sheet quality...
However, the trouble with balance sheet problems faced by financial institutions are ...failures occur when things are not good (meaning failures are driven by events ..such as the recent mortgage chaos in the US)...mor of how to find if times are good or bad in another post
Sunday, December 23, 2007
Real Value
I recently read a book (which was long overdue in my reading list) about Google's Story..What a great company.... this made me wonder about companies which have really added value to people's lives ...Lots of companies could be added to this list of "Value Adding Companies" ....but there are three major ground breaking companies that stand out
These companies actually didn't add value ...rather they changed people's lives...they saved millions of hours for the people and brought major revolutions along with their growth...Those three companies are Ford( As a large scale car manufacturer), Microsoft and google....The next question that enters my mind is...what made them so successfull....
Three things came to my mind when I searched for a common thread binding these three companies....... "simplicity, Scaleability and ofcourse ground breaking innovation " ...the likes of windows and google could reach hundreds of millions of people with their friendly user interface...and could be easily understood by a common man( One of my friends during my computer illeterate days ...used to tell me that .."No matter what happens with the windows you always have Ctrl Alt Del to save you"...That gave me much more confidence to play with my PC....ans i also used Ctrl Alt Del frequently)Also each company had a key competitve advantage on account of their technology...The technology that was simple at the front end...was pretty robust at the back end (what with loads of data centers and algorithms for delivering search results in case of google and the new method of manufacturing introduced by Ford that mainly depended on economies of scale)...
Another important aspect of their business was that their products were scaleable....This made it easier for them to reach millions of people with their robust technology....Also, if you look at the way they scaled their operations..... it is worth noting that all the three businesses were started by a 1- 2 member team ( 2 in case of google)..and used very low adertising dollars for promoting their services to consumers(at least to make people use their products)...Actually I hardly saw a google advertisement...asking people to use google....On account of the scaleability factor they actually became generics in their product class....online search has become equivalent to googling and operating systems have become equivalent to Windows XP ( Please note I am not using Vista here)....
So at the end of the day ...key takeaways from these success stories are ...1) generate a product or service that is scaleable 2) try to do some ground breaking innovations ...also on the way to your success try to enhance the quality of lives of people and of course earn handsome profits ( .....As simple as that...but easier said than done...)
Also another important that needs to be answered is ...who is gonna be the next google...A future company that could really add value at a global level....facebook or Apple?....Apple could definitely be a likely contender with their IPOD ..
However, I doubt facebook could be a likely a candidate.... despite its recent whopping valuation..I dont see them actually improving lifes of people...And I also doubt their strategy of monetizing....by using user activity to place advertisements on their profile page....Social networking could be another VOIP or ethanol fad in the making....So Apple is the most likely candidate...
but as of now I would like to say my thanks to Google and Microsoft for deeply impacting and improving my life....Thanks google and Microsoft
These companies actually didn't add value ...rather they changed people's lives...they saved millions of hours for the people and brought major revolutions along with their growth...Those three companies are Ford( As a large scale car manufacturer), Microsoft and google....The next question that enters my mind is...what made them so successfull....
Three things came to my mind when I searched for a common thread binding these three companies....... "simplicity, Scaleability and ofcourse ground breaking innovation " ...the likes of windows and google could reach hundreds of millions of people with their friendly user interface...and could be easily understood by a common man( One of my friends during my computer illeterate days ...used to tell me that .."No matter what happens with the windows you always have Ctrl Alt Del to save you"...That gave me much more confidence to play with my PC....ans i also used Ctrl Alt Del frequently)Also each company had a key competitve advantage on account of their technology...The technology that was simple at the front end...was pretty robust at the back end (what with loads of data centers and algorithms for delivering search results in case of google and the new method of manufacturing introduced by Ford that mainly depended on economies of scale)...
Another important aspect of their business was that their products were scaleable....This made it easier for them to reach millions of people with their robust technology....Also, if you look at the way they scaled their operations..... it is worth noting that all the three businesses were started by a 1- 2 member team ( 2 in case of google)..and used very low adertising dollars for promoting their services to consumers(at least to make people use their products)...Actually I hardly saw a google advertisement...asking people to use google....On account of the scaleability factor they actually became generics in their product class....online search has become equivalent to googling and operating systems have become equivalent to Windows XP ( Please note I am not using Vista here)....
So at the end of the day ...key takeaways from these success stories are ...1) generate a product or service that is scaleable 2) try to do some ground breaking innovations ...also on the way to your success try to enhance the quality of lives of people and of course earn handsome profits ( .....As simple as that...but easier said than done...)
Also another important that needs to be answered is ...who is gonna be the next google...A future company that could really add value at a global level....facebook or Apple?....Apple could definitely be a likely contender with their IPOD ..
However, I doubt facebook could be a likely a candidate.... despite its recent whopping valuation..I dont see them actually improving lifes of people...And I also doubt their strategy of monetizing....by using user activity to place advertisements on their profile page....Social networking could be another VOIP or ethanol fad in the making....So Apple is the most likely candidate...
but as of now I would like to say my thanks to Google and Microsoft for deeply impacting and improving my life....Thanks google and Microsoft
Thursday, November 1, 2007
Facebook= Skype...Valuations....who cares.....
Guess it has been long since I made a decent post....
But overall I have been burning the midnight oil for the past month (Ok..I went to my home town and had a gala time with my folks).....
Coming back on track....
"Valuation is more of an Art than Science"....But the problem with valuation is .....once done wrongly it tends to pinch everybody ranging from the Ivory tower...to the workshop.....the last internet bubble provided enough evidence of this scenario....And I guess oldtimes are back
Recent events in the US seems to provide good indications of significant lapses made by big time company while making "strategic" acquisitions...a typical case in point is the much touted " Skype Acquisition" by E-Bay.. Ebay recently announced that company is writing -off more than $ 1.0 Billion of goodwill value due to impairment (Just like that...one moment it is there in the balance sheet and the next moment it is not) of assets ...In laymans word ...they committed a blunder by losing more than $1.0 Billion on a business model which they didnt understand ( I still maintain that skype has a good business model...it is just a good company in wrong hands)...
Close to the heels of this announcement by Ebay.....Microsoft recently took an equity stake in facebook
It's official: Microsoft will take a $240 million equity stake in Facebook during its next round of financing, valuing the company at a whopping $15 billion.
Great....Kudos Microsoft there you go ...Beat the Google guys in their own game....
Euphoria over.. now let us analyse this deal
Last year Yahoo came close to acquiring Facebook for $ 1.0 Billion when compared to the current $15.0 Billion valuation by Microsoft ( why does Yahoo always underquote)....I find the leap from $1.0 Billion to $15.0 Billion quite insane...and I do not know where the fundamentals of valuation got lost in this whole proces. It makes you feel that it is more like shooting arrows in the dark than seriously analysing cashflows...
The company plans to make its money through advertising ...donno how much though....As an article in tech crunch points out the valuation and numbers doesnt match well.....
So would Facebook be another Skype for E-Bay ....Besides I guess Microsoft should be wise enough to get back value for what it pays....the only question is how!!!!!!
But overall I have been burning the midnight oil for the past month (Ok..I went to my home town and had a gala time with my folks).....
Coming back on track....
"Valuation is more of an Art than Science"....But the problem with valuation is .....once done wrongly it tends to pinch everybody ranging from the Ivory tower...to the workshop.....the last internet bubble provided enough evidence of this scenario....And I guess oldtimes are back
Recent events in the US seems to provide good indications of significant lapses made by big time company while making "strategic" acquisitions...a typical case in point is the much touted " Skype Acquisition" by E-Bay.. Ebay recently announced that company is writing -off more than $ 1.0 Billion of goodwill value due to impairment (Just like that...one moment it is there in the balance sheet and the next moment it is not) of assets ...In laymans word ...they committed a blunder by losing more than $1.0 Billion on a business model which they didnt understand ( I still maintain that skype has a good business model...it is just a good company in wrong hands)...
Close to the heels of this announcement by Ebay.....Microsoft recently took an equity stake in facebook
It's official: Microsoft will take a $240 million equity stake in Facebook during its next round of financing, valuing the company at a whopping $15 billion.
Great....Kudos Microsoft there you go ...Beat the Google guys in their own game....
Euphoria over.. now let us analyse this deal
Last year Yahoo came close to acquiring Facebook for $ 1.0 Billion when compared to the current $15.0 Billion valuation by Microsoft ( why does Yahoo always underquote)....I find the leap from $1.0 Billion to $15.0 Billion quite insane...and I do not know where the fundamentals of valuation got lost in this whole proces. It makes you feel that it is more like shooting arrows in the dark than seriously analysing cashflows...
The company plans to make its money through advertising ...donno how much though....As an article in tech crunch points out the valuation and numbers doesnt match well.....
So would Facebook be another Skype for E-Bay ....Besides I guess Microsoft should be wise enough to get back value for what it pays....the only question is how!!!!!!
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