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Estimation choices for Beta estimation

Three concerns are worthy to take in account when conduct Beta estimation:

First. length of the estimation period. Examples:

  • Value line and Standard &Poor’s: five years of data
  • Bloomberg: 2 years of data


  • Pros: Longer estimation, more data
  • Cons: Longer estimation are not favorable when firms change risk characteristics over time period.

Second, return interval:

  • Annually
  • Weekly
  • Daily
  • Intraday basis


  • Too frequent basis might cause bias in cases of non-trading.
  • Small firms with less liquidity might suffer from downward valuation if too frequent interval is used.

Third, the choice of market index. The beta estimated are generally made based on the market the stocks are traded.


Source: Investment Valuation, Tools and Techniques for Determining the Value of Any Asset, Aswath Damodaran, 2nd Edition







DCF: long-term growth rate calculation

Calculate long-term growth rate

Step 1: Calculate Return on capital

  • Debt+equity

Return on capital = NOPAT/ (Debt+equity)


  1. Calculate NOPAT
-Cost of goods sold
=Gross profit
-Selling, general & administration
-Estimated depreciation
-Taxes @ 35%
+Estimated depreciation
=Cash flow from operations


  1. Debt are long-term obligations (listed on Balance sheet)


Step 2: Calculate Reinvestment rate

  • Change in net fixed assets
  • +Change in net working capital
  • =Net investment

 Reinvestment rate=Net investment/NOPAT


Step 3: Calculate long-term growth rate

g=Return on capital*reinvestment rate

Calculate Beta based on imported stock price

3 approaches to calculate beta

Before going into the following three approaches, it is necessary to calculate the return rate based on stock prices:

Return rate=Stock price (t+1)/Stock price (t)-1


Approach 1: Beta= Covariance (ri,rm )/Variance of Market

The covariance of the return of an asset and the return of the benchmark divided by the variance of the return of the benchmark over a certain period.



Approach 2: Beta= Correlation(ra,rm)* S.D(i)/ S.D(m)


Functions used in Excel:

“CORREL” =Correlation

“STDEV” =Standard deviation 


Approach 3: Slope function in Excel

SLOPE(known_y’s, known_x’s) 

Y-axis refers to Market Index, e.g. S&P 500

X-axis refers to targeted company, e.g. Amazon





Circular Economy: 4 Fundamental Messages

Business world can largely benefit from circular economy for apparent reasons: waste reduction, production efficiency, innovation, and among others. It is, for sure, that a closed-loop ecosystem within which every stakeholders like the society, the company, the consumers and etc. can all feel and touch each inch of changes brought about by the new business model.


From Linear to Circular

Here are 4 key messages which might promote the innovation and enlarge benefits for business world:

  1. From PRODUCTS to SERVICES. Traditional product manufacturers who sell tangible products can try to seek out ways to sell their SERVICES, which might surprise the market and win in a fresh “blue ocean”.
  2. From OWNERSHIP TO SHARING ECONOMY. Physical products or services can be taken in another way, i.e. the products under my disposition are mine, but I would not mind share the product or service with you and you are willing to share the cost with me meanwhile. A win-win situation. A well-known innovative business model speaks for itself–the car haling and sharing leaders represented by Uber, Blablacar, Airbnb etc.
  3. Value Chain idea. Manufacturers partner with upstream suppliers and motivate downstream clients and consumers to work together aiming for recycling waste. In this ecosystem, the wastes are no more useless troubles but can be transformed into “raw materials” for other manufacturing stages.
  4. Finance circular economy. Real economy out of the support of financial services cannot go further. Financial services innovations to better serve the new demands in circular economic models are highly valued and are of great business opportunities.