文档介绍：Measuring Investment Returns
Aswath Damodaran 1
First Principles
Invest in projects that yield a return greater than the minimum
acceptable hurdle rate.
• The hurdle rate should be higher for riskier projects and reflect the
financing mix used - owners’ funds (equity) or borrowed money (debt)
• Returns on projects should be measured based on cash flows
generated and the timing of these cash flows; they should also
consider both positive and negative side effects of these projects.
Choose a financing mix that minimizes the hurdle rate and matches the
assets being financed.
If there are not enough investments that earn the hurdle rate, return the
cash to stockholders.
• The form of returns - dividends and stock buybacks - will depend upon
the stockholders’ characteristics.
Aswath Damodaran 2
Measures of return: earnings versus cash flows
Principles Governing Accounting Earnings Measurement
• Accrual Accounting: Show revenues when products and services are sold
or provided, not when they are paid for. Show expenses associated with
these revenues rather than cash expenses.
• Operating versus Capital Expenditures: Only expenses associated with
creating revenues in the current period should be treated as operating
expenses. Expenses that create benefits over several periods are written
off over multiple periods (as depreciation or amortization)
To get from accounting earnings to cash flows:
• you have to add back non-cash expenses (like depreciation)
• you have to subtract out cash outflows which are not expensed (such as
capital expenditures)
• you have to make accrual revenues and expenses into cash revenues and
expenses (by considering changes in working capital).
Aswath Damodaran 3
Measuring Returns Right: The Basic Principles
Use cash flows rather than earnings. You cannot spend earnings.
Use “incremental” cash flows relating to the investment decision, .,
cashflows that occur as a con