How to value an asset

A Field Research Field Guide

Hey Friends,

Welcome back to Field Research, the dark humor and satire publication written and produced by me, Amran Gowani.

In today’s entry we discuss how to value an asset.

Content warning: if you think numbers are pagan symbols created by The Beast to indoctrinate and groom prepubescent children, you may find this material traumatic.

Photo by Giorgio Trovato on Unsplash

Let’s kick off with an assertion. Whether you’re an antifa Marxist, a neoliberalist cuck, or an Ayn Rand-humping techno-libertarian twat, you can’t deny humans naturally create and form markets. It’s just how our monkey brains work.

We trade goods and services for other goods and services, and we use money as a fungible tool to facilitate those exchanges.

To operate within that framework, we need reliable, reproducible tools for valuing assets, which help (gamblers) investors triangulate to fair market value. Nowadays we have several popular techniques at our disposal, including discounted cash flow, comparative multiples, and precedent transactions analyses.

Each has its own idiosyncrasies, strengths, weaknesses, and limitations, and each is utterly useless and totally irrelevant in its own special way.

Heed this

Before we dive into the nonsensical mechanics of those aforementioned valuation methods, I want to impart — by far — the most important lesson first.

Key takeaway: the only valuation method that matters is willingness to pay.

Your money pit of a condo is only worth whatever price some other idiot will pay for it. Same for your car, the stocks and bonds in your portfolio, and your children. If nobody will give you money for those things, then they’re worth zero dollars.

Likewise, if some donkey’s willing to pay $13 million for a Pepe the Frog NFT, then it’s worth $13 million.

It doesn’t matter how ridiculous or insane or irrational you think that is.

Take Twitter.

The Incel King was so desperate and horny to promote hate speech he dropped $44 billion on the floundering social network. He then proceeded to make the site even dumber, and scared away most of its advertisers, which surely means it’s worth zero dollars today.

But! If SkyCuck dupes MBS into taking Twitter off his hands for $50 billion, then it’s worth $50 billion.

See how that works?

Willingness to pay is the only relevant valuation method.

Don’t forget.

Valuation is relative

The most commonly employed valuation technique, comparables analysis, is also the laziest.

As the name indicates, comparables analysis involves calculating valuation ratios for a cohort of similar assets and comparing them.

When looking at the securities of large, multinational corporations, for example, the thinking goes like this: if a bunch of companies are in the same line of business, subject to the same laws and tax rates and macroeconomic conditions, then — all else being equal — the valuation ratios for their respective securities should be similar.

As always, life’s easier with an example (all figures illustrative).

Example: Let’s assume ExxonMobil’s common stock trades with a price-to-earnings ratio of 11.7, BP’s (née British Petroleum’s) common stock trades with a price-to-earnings ratio of 12.2, and Chevron’s common stock trades with a price-to-earnings ratio of 15.8.

Immediately, you might say: well, all three companies destroy the planet, lobby against the implementation of a carbon tax, and refuse to invest in alternative or renewable energy sources. All three companies have also adopted an “Ah fuck it our shareholders want dividends today not breathable air tomorrow” philosophy. Ergo, the common stocks of all three companies should trade with similar price-to-earnings ratios.

Chevron’s common stock thus appears overvalued relative to its peers.

That’s the extent of the analysis.

No, seriously.

You can choose any ratio (price-to-earnings, price-to-sales, price-to-EBITDA, enterprise value-to-EBITDA) for any asset class (fast-food bonds, gunmaker stocks, Andrew Tate NFTs) and the same algebra applies.

Bankers, analysts, traders, and investors make millions of dollars in fees and billions of dollars in capital gains moving trillions of dollars of securities relying on this rudimentary technique.

No, seriously.

Of course, I’m slightly oversimplifying, and a significant amount of qualitative analysis accompanies this seventh grade math. For example, perhaps Chevron’s common stock is more valuable because they pivoted into the blood diamond business. Or maybe BP and ExxonMobil dumped billions of gallons of oil into the ocean. Again.

Any number of nonsensical reasons could be used to justify the valuation disparity — remember: the market price is determined by the irrational herd’s willingness to pay — but the math itself remains simple and unsophisticated.

Key takeaway: Wall Street is dumb.

I won’t spend too much time on precedent transactions because it’s basically the same thing.

Example: If Amazon bought that overhyped bullshit AI company for $10.8 billion, and Facebook bought that other overhyped bullshit AI company for $13.3 billion, then my overhyped bullshit AI company must be worth $10.8 billion to $13.3 billion.

That’s it.

That’s the extent of the analysis.

No, seriously.

Key takeaway: Wall Street is a scam.

Accounting is absurd, cash is king

The final valuation method we’ll discuss is considered the most sophisticated, and is viewed as the gold standard by Ivory Tower elitists and mental masturbators.

According to finance theory, the value of an asset derives from the net present value (NPV) of its future cash flows. The discounted cash flow (DCF) method is thus designed to forecast those cash flows and determine an asset’s present-day intrinsic value.

Obviously, that word salad means fuck all to anyone not versed in the dark arts of financial obfuscation.

Put simply, as Meth told us thirty damn years ago, Cash Rules Everything Around Me, C.R.E.A.M., get the money, dollar dollar bill, y’all.

The operative metric here is cash. Not sales. Not gross profit. Not operating income. Not earnings. Cash. You can’t pay your mortgage with gross profit. You can’t buy street fentanyl with operating income. Cash makes the world go round.

Let’s revisit our Pepe the Frog NFT to illustrate.

A Pepe the Frog NFT generates zero dollars in cash for the donkey who buys it. Zero cash this year. Zero cash next year. Zero cash for the rest of eternity.

The total cash generated by the Pepe the Frog NFT is thus zero dollars, and the intrinsic value of the Pepe the Frog NFT is thus zero dollars.

No cash, no value. End of story.

Except, the dipshit who pays $13 million for the Pepe the Frog NFT invalidates this whole construct, because willingness to pay trumps all other valuation methods.

See how that works?

Don’t forget.

Now, to properly understand the intricacies and inner workings of a DCF analysis, we’d need to build a financial model and dive way down into the accounting muck. Problem is: accounting sucks ass, is boring AF, and is littered with loopholes, so we’re going to skip the minutiae and focus only on the salient points.

To do this, I dreamt up the most depressing DCF exercise I could think of: I valued Field Research.

Better than Substack’s finances.

As you can see from the spreadsheet, Field Research is a highly profitable enterprise, with healthy margins, exciting growth prospects, and excellent business fundamentals.

Sorry, I meant the exact opposite of all that.

Here are the key assumptions underpinning the forecast in my DCF model.

1) Field Research will only exist until Christmas 2025, at which point my wife will get fed up with my “stupid little writing project” and kick me out of the house. I’ll freeze to death under a bridge shortly thereafter.

2) Field Research will generate modest year-over-year Gross revenue growth. Some subscribers will wonder why they ever gave money to a depressed, middle-aged rando and decline to renew, while slightly more people will say, “That boy seems sad,” and set their money on fire.

3) I have no idea how to model Cost of Goods Sold (COGS) for pathetic blog entries written by one person who doesn’t earn a salary, so I just made up a number.

Key takeaway: every figure in a financial statement presents a golden opportunity for fraud. Pro tip: when you see the word “adjusted,” assume the worst.

4) Research and development (R&D) expenses include subscriptions to The Economist, the plebe tier of The Financial Times, and various Substack newsletters, as well as trips to writing conferences. What, you think I come up with my own ideas?

5) Selling, general, and administrative (SG&A) expenses include my cell phone and internet bills, and make the following assumption: if Field Research was a bona fide standalone business, and not a welfare state, my wife would charge me $1,500 per month to rent a working space in her house (inclusive of all utilities).

6) The best thing about running a deeply unprofitable business is you never have to pay taxes. #trickle-down

7) Non-cash items such as depreciation, amortization, and stock-based compensation (lolz) are difficult to model, so I made them up. Same with changes in working capital.

8) For capital expenditures (CAPEX), I assume my wife will buy me a new cell phone, tablet, or laptop each year so I can experience one fleeting moment of joy. #consumerism

Summing all those figures produces annual free cash flow (FCF), and FCF is the stuff of value. But, due to inflation, money today is worth more than money tomorrow — Thanks, Obama — so we have to discount our future free cash flows to their present value. I arbitrarily chose a 15.0% discount rate, because explaining how you’re supposed to determine a discount rate is beyond the scope of this Field Guide. And also, absurd.

As you can see, this rigorous exercise, which compounds wild assumptions, reckless speculation, and abject fraud, concludes the fundamental intrinsic value of Field Research is -$60,327 (from summing -$21,995 in 2023, -$20,112 in 2024, and -$18,220 in 2025).

Key takeaway: when it comes to financial modeling, the old “garbage in, garbage out” mantra remains violently apropos.

One final note: when valuing a business or enterprise, the DCF method typically assumes the entity will remain a going concern. Since it’s impossible to model each year through infinity, standard practice calls for calculating a so-called terminal value.

Terminal values are pure, unadulterated madness, so I skipped that part of the exercise. If you really want to know, drop a comment.

Well Friends, that concludes our first ever Field Research Field Guide. I hope you found it insightful, informative, and entertaining.

Given the nature of the topic, I put more work than usual into this piece, including reviewing course materials from my MBA program, revisiting financial models I created when I worked as an equity research analyst, and conducting my own DCF analysis.

In theory, the labor and ideas embedded in this post make it valuable. Of course, 97% of you cheap fu–lovely people have a willingness to pay of zero dollars.

And willingness to pay supersedes all other valuation methods.

See how that works?

Don’t forget.