Create More Value Aswath Damodaran on valuation, bias, and real value creation
Jan 6, 2026
Aswath Damodaran, a distinguished finance professor at NYU Stern, dives deep into the intricacies of valuation and corporate finance. He challenges traditional metrics like ROIC, emphasizing the need for innovative approaches to capturing real value. Damodaran highlights the significance of intertwining company narratives with numerical analysis and critiques the pitfalls of relying on accounting measures. He discusses the impact of bias in forecasts, the role of R&D as a genuine investment, and offers insights on navigating the emerging AI landscape—all while underlining the importance of realistic valuation strategies.
AI Snips
Chapters
Books
Transcript
Episode notes
Capitalize Growth Investments
- Treat R&D, brand and training as capital expenditures and test them like a factory investment.
- Damodaran advises adjusting analysis by company life cycle before relying on ROIC.
Use Dynamic, Investment-Specific Hurdles
- Use investment-specific discount rates that change over time rather than a single corporate hurdle rate.
- Build expected shifts (country risk, tax, beta) into your cash flows and discounting schedule.
Distinguish Expected Cashflows From Risk Adjustment
- Expected cash flows should incorporate known probabilities of events, not be called "risk-adjusted" casually.
- Damodaran says true risk-adjustment requires turning expected cash flows into certainty-equivalents, which is rarely done.
