Madrid's Fernandez offers common sense positions on tough BV issues

Valuation and Common Sense: a new—and free—book by "Spain's Damodaran" offers 25 thought-provoking chapters from Pablo Fernandez, including:

  • “Cash Flow Is a Fact; Net Income Is an Opinion”
  • “Ten Badly Explained Topics in Most Corporate Finance Books”
  • “Are Calculated Betas Worth Anything?”
  • “Beta = 1 Does a Better Job Than Calculated Betas”
  • “Optimal Capital Structure: Problems With the Harvard and Damodaran Approaches”
  • “Market Risk Premium Used in 82 Countries in 2012: A Survey With 7,192 Answers”

Fernandez, a finance professor at the University of Navarra, IESE School of Business (Madrid) and a respected BV authority who speaks frequently at professional conferences in the U.S.—has just made his entire book available online, including the table of contents, which, in turn, provides links to the download for each chapter.

In “119 Common Errors in Company Valuations,” for instance, the author identifies three broad categories of valuation errors that occur when calculating: (1) the discount rate and company risk; (2) expected cash flows; and (3) residual value. He also discusses the conceptual, interpretative, and organizational errors common to public company valuations. “The author had access to most of the valuations referred to in this paper in his capacity as a consultant in company acquisitions, sales, mergers, and arbitrage processes,” Fernandez writes, and his new book takes a decidedly public company slant—but his generosity in making his book available to the international academic and BV community is decidedly “Damodaran-esque.”