company.You expect to lose Tax Accountant Adelaide money forever.You’re thinking about paying for this company.What’s wrong with you?Which brings me to the third and final proposition–next week, when my class starts, I let people pick companies.In fact, I insist that they pick companies.They have to value those companies over the next or weeks, over the semester.They can pick whatever company they want.They can pick Lukoil.They can pick Google.They can pick Amazon.And sometime in the first or the second week,a subset of people– not everybody in the class,thank god
— but of them will show up saying,I have to change my company.I say, it’s a little early.Why are you panicking?They say, well, I worked out the cash flows for my company.And they’re negative.And you said in the Duh proposition,if the cash flows are negative, you can’t value a company.And I say, that’s not what I said.If the cash flows are negative forever,you can’t value the company.
But if your cash flows are negative in yearone, year two, year three, it’s not the end of the world.In fact, there are a subset of companies,when you value the company, you should get negative cash flowsup front.What types of companies will you get negative cash flowsup front?AUDIENCE Growth companies.ASWATH DOMODARAN Young growth companies– and here’s why.To grow, what do you have to do?You’ve got to put money back into the business.There is no magic bullet that youcan use to grow at % a year.So if I’m valuing a Tesla,
I shouldexpect to see negative cash flows up front.Why?Because you’ve got to build those assemblyplants to deliver those times more carsI expect you to sell five years from now.But if you have negative cash flows upfront,you’ve got to have disproportionatelylarge positive cash flows in the future.You see why they have to be disproportionately large?
You use $ billion in year one.You’ve got to make up for it with $ billion in year .So with young growth companies,