Why are tax savings from interest ignored when computing free cash flow to firm?

Whilst preparing for my CFA Level II examinations, I was really perplexed by the calculation of the free cash flow to firm (“FCFF”) especially with regard to the tax saving from interest expenses. Let me elaborate. The definition of FCFF as per the CFA curriculum is: "Free cash flow to the firm is the cash … Continue reading Why are tax savings from interest ignored when computing free cash flow to firm?

Is delayed gratification the primary reason why investors end up undervaluing high quality companies?

My thoughts on Prof. Sanjay Bakshi’s talk on “What happens when you don’t buy quality” In 2013, Prof. Sanjay Bakshi gave a seminal talk[1] tilted, “What happens when you don’t buy quality”. The crux of the talk was that market participants are unable to delay gratification and thus, heavily discount cash flows occurring far into … Continue reading Is delayed gratification the primary reason why investors end up undervaluing high quality companies?

How I learned the craft of valuation and ended up assisting Prof. Aswath Damodaran

In 2007, I graduated from college without having a clue as to what I wanted to do with my life. So I just followed what others were doing and enrolled in the Chartered Accountancy (CA) program. The Indian CA program is rigorous not just because of its tough exam structure, but also because you have … Continue reading How I learned the craft of valuation and ended up assisting Prof. Aswath Damodaran

Why net depreciation from capex for computing reinvestment rate

We recently came across a question on Quora about why Prof. Damodaran subtracts “depreciation from capex when computing the reinvestment rate of a business.” It further goes on to state the following: "In his book, [Prof. Damodaran] seems to argue that depreciation is a cash inflow that pays for a part of capex, but I don't … Continue reading Why net depreciation from capex for computing reinvestment rate

Putting numbers to the Welspun scandal

Welspun India has been marred in a controversy over supply of fake Egyptian cotton to its US customers like Target and Walmart. Given this controversy, investors are running away from the company using adages such as 'there is never just one cockroach in the closet'. Investors using such adages as crutches without considering the monetary … Continue reading Putting numbers to the Welspun scandal