Valuation Fundamentals
DCF, multiples, WACC, and the relationship between growth and multiples
In January 2022, Microsoft announced its acquisition of Activision Blizzard for $68.7 billion in cash — $95 per share, a 45% premium to the pre-announcement price. On the other side of that trade, every Activision shareholder had to answer a deceptively simple question: is $95 per share a fair price for this business, or am I leaving money on the table?
That question — what is a business actually worth, independent of what the market says today — is the central problem of valuation. Get it right and you buy dollar bills for sixty cents. Get it wrong and you overpay for mediocre assets dressed up in growth-story clothing.
This lesson gives you the complete toolkit: discounted cash flow (DCF), relative valuation, and the single most important conceptual test — whether growth creates or destroys value. Before you can discount anything, you need a discount rate.
That is the opening. Finishing a lesson is where it stops being interesting and starts being useful: the full lesson runs to 5 sections and ends with 6 practice questions. A free account is what opens the rest, and the other 255 lessons in the Academy with it. No card.
What this lesson covers
- 1Weighted Average Cost of Capital (WACC)
- 2Gordon Growth Terminal Value
- 3Microsoft DCF — terminal value dominance
- 4Valuation multiples — when each applies and when each fails
- 5Real-world data — Microsoft valuation snapshot