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Company Valuation Videos 175 videos

Finance: What is Volatility?
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Finance: What is Beta?
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What is Beta? Beta is a figure associated with public companies that measures how risky the company’s stock is in comparison to the market as a w...

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Finance: What is Beta? 22 Views


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What is Beta? Beta is a figure associated with public companies that measures how risky the company’s stock is in comparison to the market as a whole

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Transcript

00:00

Finance allah shmoop What is beta it's Volatility That's it

00:07

here's a stock chart reflecting the performance of a highly

00:09

volatile stock plus size manikins ink and here's A teen

00:13

t stock chart The last twenty years Yeah Whole lot

00:16

less volatile Eighteen t stock has left beta then p

00:20

s m so here's p s m mapped over the

00:23

s and p five hundred Gopi sm is about twice

00:26

a cz volatile Is the market here like on days

00:28

The markets up one percent p s m is up

00:31

two percent on days The markets down four percent p

00:33

s m is crushed down eight percent So you'd say

00:36

it has a beta relative to the s and p

00:38

five hundred of two point Oh or two acts So

00:41

the hammer this home let's do advanced math here So

00:44

if any given day the marks up one point two

00:46

percent has bit of two point Oh you'd expect p

00:48

s m to be up two point four percent and

00:51

same deal on the downside Yeah All right So what

00:53

gives a company high beta Well simply put uncertainty Some

00:57

companies have products in the pipeline Where the broader market

01:00

has a lack of certainty that buyers by the millions

01:04

anyway will want that product sort of the opposite of

01:07

coca cola Like what are the odds that buyers will

01:09

still want diet coke next year Yeah pretty good odds

01:13

but plastic manikins modeling extra large kimonos away Less certainty

01:19

So the company may end up awesome and ruling the

01:21

world Or it may end up being melted down for

01:24

spare parts Yeah Making newsman drone helicopter thing right Well

01:28

what else creates beta Well leverage or debt Some companies

01:32

have tons of cash Others have tons of debt of

01:34

company a is trading for one hundred bucks a share

01:37

and it has no debt and ninety five dollars a

01:40

share in cash Will The market is valuing the operations

01:44

of that company and only five bucks a share So

01:47

the operations could do awesome Or they could do terrible

01:50

and nobody's going to care Big web stock goes to

01:52

one hundred hundred five Ninety five Something like that big

01:56

No big deal So yeah i think about that The

01:58

value The operations could increase one hundred percent and be

02:02

worth five dollars more than the company's worth one hundred

02:04

Five bucks No big deal All right but what about

02:06

company b It has one hundred million box in ibadan

02:09

or cash flow or cash earnings and five hundred million

02:13

dollars in debt Well it trade today at eight times

02:16

ebitda calculated as eight times that hundred million figure Then

02:20

subtracting the five hundred million dollars in debt Well the

02:23

company would be valued at three hundred million dollars That

02:27

would be its market cap But what if it's new

02:28

product is likely to be loved and people get excited

02:31

about it and its operation suddenly get valued at twelve

02:34

times even thought instead of just eight While the math

02:37

goes like twelve times than one hundred million in cash

02:40

flow for one point two billion then you subtract the

02:43

five hundred million dollars in debt And that gets you

02:45

a market value for the whole company of seven hundred

02:48

million dollars So think about it The multiple of even

02:50

da being paid by investors went up just fifty percent

02:53

from eight to twelve But the stock market value of

02:56

this company went up well over one hundred per cent

02:58

In fact one hundred thirty three percent Why so much

03:01

More volatile or so much more beta Yeah leveraged debt

03:04

gasoline on the fire It can be great but when

03:08

things go the other way it can leave you feeling 00:03:10.49 --> [endTime] you know like a dummy

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