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Why valuing companies like SpaceX is so difficult
A NYU professor says valuation relies on long-run cash flow, discount rates, and financing assumptions, where small errors can produce big swings in results.
Yahoo Finance highlights a June podcast conversation between Sparkline Capital's Kai Wu and NYU Professor Aswath Damodaran on how to value SpaceX, a process that Damodaran says is built on assumptions that are often hard to pin down.
Damodaran frames company value as the present value of all future cash flows, which requires projecting how much the company will sell, the associated costs over time, and the timing of when that cash arrives.
He also notes that analysts must forecast the capital structure, including how much debt and equity financing will be used, and estimate debt interest rates and the equity risk premium over the life of the business.
The piece adds that if any of these inputs are wrong, valuation can suffer from a classic “garbage in, garbage out” problem, and that uncertainty is especially pronounced for highly speculative business plans like those SpaceX intends to pursue, according to Yahoo Finance.