Told my MD how I got the discount rate
My MD was going through my model for a very popular athletic clothing brand. Imma be honest here now, I have no idea what a discount rate is (no biggie, I’ll do my own research). So I went onto the company’s website to look for more info. I made an account and almost instantly, like they knew what I was looking for, they sent me a discount rate! I couldn’t believe my luck, and plugged it into the model. It was 10% and looked reasonable to me.
My MD clearly looked flustered when I told him this right before the client meeting. Is this not how to get the discount rate? Help??
There used to be a place called Ebates where they centrally managed and published discount rates for almost all consumer retail sector players. Now rakuten acquired it for obvious synergy. Let me know if you interested in a premium account which gives you access to a database of over 10,000 discount rates. PM me.
…you have to calculate wacc on your own.
Low effort move
Yikes, found the life of the party folks
That’s really cool man.
Some websites make you use weird codes like FRESH15 to get their discount rate.
That’s whack man
I use a special dartboard to calculate the discount rate. It’s purely fate.
This has more empirical support:
lolol
This is correct as companies give discount rates in proportion to how strong the economy / their business is - great job finding this out on your own!
Why didn't you say Chat GPT gave it to you?
I told my MD that my gf works there and I have employee discount rate. Needless to say, he was in rage
Groupon > Capital IQ for financials
This is facts. Obviously explains the drop in stock prices immediately after thanksgiving. Great buying opportunity every year imo, idk why no one figured this out yet
cuz it's priced in
Bit rambly below, but just had my coffee so felt like adding a devil's advocate view.
Ironically I could make an argument that retail good discounts 'should' be capped at the company's discount rate. Like I think there's a weird form of correlative logic here.
Stay with me... I sell a good for $100, if I had 0 operating costs and 0 taxes then this 'profit' would go straight to the capital holders (for simplicity of this example, assume it's 100% equity funded, I put in $100 initially as equity capital).
Means my $100 is straight to equity with a 100% return.
If it produces another $100 the following year, then that return is 100/200, making it a 50% return.
Another year goes by, 100/300, 33%.
Another 100/400, 25%
Another 100/500, 20%
Another 100/600...100/700...100/800...100/900...100/1000
Now each year the return on my capital base is less than 10% after 100/1000.
However I also realise if I can discount my product so that I can sell another one (via price elasticity of demand). The 'most' I can discount it and still be worth it to my bottom-line is the amount of return. e.g. discount original by 10% on 100, I can sell two for 90, so I get 180. 180/1100 > 100 / 1100. There is then a relationship between the discount rate on the product vs. the return implied on capital.
Now the world is more complex than this and there is operating costs, tax etc, and I probably messed the math up along the way (hence it's more of a wobbly correlative effect), but I do think that if I had a rational, well-run retailer, they should be able to discount to the max of their cost of capital pre-price elasticity if there is a chance they will get more sales in an efficient manner (i.e. this is a management mechanism where you can push RoE > CoE, in fact this is the basis of a cost-led strategy anyhow and why digital products > physical, because it's not necessarily the 'price' that they win on, it's the 'cost' it takes to run the operation at the end).
Separately, if you whack in a 10% you're going to be pretty much right. If historical cost of equity is 4-6%, and long-term debt rounds out to target inflation of 3%+ (i.e. I believe the 'real' risk free rate should theoretically net out to 0 in the long-run which I guess reflects a philosophical view similar to ZeroHedge, but in reality there is no such thing as a real 'risk free' return in the long-run, because I can break it by simply say human civilisation will collapse some point in the future, and hence the rate at that time will cease to exist, hence there's a risk, even if it's infinitesimally small, thus everything else is just arbitrary approximation for 'optics') then your long-term wacc ends up around there anyhow (also there's a certain mathematical symmetry implied by a 10% discount rate that makes pitches cleaner when you forecast out time periods etc that bankers tend to love).
And the Nobel Prize goes to ...
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