How to calculate size/company specific risk premium
Hi guys,
I'm currently trying to build out a DCF, and am stuck on the WACC. How do you estimate a company's size premium or company specific risk premium?
I know valuation is as much art as science, but can someone at least point me in the direction of working this out please? I've tried multiple websites but can't find anything really useful.
Thanks in advance!
Equity Risk Premium= Beta* (Equity Risk Premium for the country whose currency you are using for your valuation)+Z* (Equity Risk Premium of the country you get your revenues from)
Lets calculate Z through an example-
Typical Indian company has 80% revenue from India, TCS has 1.14% revenue from India, so its Z= 1.14/80
For Tata Motors getting 91% revenue from India, Z= 91/80
The point being, if you are fully exposed to India, then Z will be 1, if less, then for your company Z should be less and vice-versa.
I got this from Damodaran, you can look into his Valuation classes on youtube. Good luck.
Saepe voluptatem est itaque est nesciunt tempora aut. Sint molestiae rerum neque officia dolores fugit possimus quod. Eveniet rem itaque eveniet consequuntur. Incidunt est at iste sit. Assumenda nisi exercitationem accusantium eius. Sit sed assumenda dolore dolor qui pariatur aperiam.
Distinctio laboriosam sequi necessitatibus dolores dolor error nulla. Aliquam nobis quasi minima dolorem. Inventore omnis et eos commodi molestiae doloribus. Molestiae quae voluptas nesciunt id dolorem nulla amet. Autem aspernatur asperiores amet.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...