Valuation: Measuring and Managing the Value of Companies / Edition 5

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Corporate finance is simpler and more intuitive than most people think. Yet, executives frequently make decisions that defy the core principles and their own intuition. They subscribe to the common wisdom of "The Street" instead of simple, common financial sense.

McKinsey's Valuation: Measuring and Managing the Value of Companies, Fifth Edition, provides the knowledge executives need to make value-creating decisions—replacing some of the myths that pervade the corporate world with proven principles of value creation.

Thoroughly revised and expanded to reflect business conditions in today's volatile global economy, Valuation, Fifth Edition provides up-to-date insights and practical advice on how to create, manage, and measure the value of an organization. Along with all new case studies that illustrate how valuation techniques and principles are applied in real-world situations, this comprehensive guide has been updated to reflect the events of the real estate bubble and its effect on stock markets, new developments in corporate finance, changes in accounting rules, and an enhanced global perspective.

Valuation, Fifth Edition is filled with expert guidance that managers at all levels, investors, and students have come to trust. It contains a solid framework for valuation:

  • Analyzing historical performance, including reorganizing a company's financial statements to reflect economic rather than accounting performance
  • Forecasting performance, with emphasis on not just the mechanics of forecasting but also how to think about a company's future economics
  • Estimating the cost of capital with practical tips that aren't found in textbooks
  • Interpreting the results of a valuation in light of a company's competitive situation
  • Linking a company's valuation multiples to the core drivers of its performance

Hailed by financial professionals worldwide as the single best guide of its kind, Valuation, Fifth Edition remains true to its roots, with an extensive discussion on the complexity of measuring corporate performance to assess historical financial results properly and to gain insight into a company's ability to create value in the future (its corporate "health").

At the crossroads of corporate strategy and finance lies valuation. Filled with expert guidance and reliable advice, Valuation, Fifth Edition enables everyone from the budding professional to the seasoned manager to excel at measuring, managing, and maximizing shareholder and company value.

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Product Details

  • ISBN-13: 9780470424650
  • Publisher: Wiley
  • Publication date: 8/10/2010
  • Series: Wiley Finance Series, #497
  • Edition number: 5
  • Pages: 840
  • Sales rank: 148,662
  • Product dimensions: 7.30 (w) x 10.00 (h) x 1.90 (d)

Meet the Author

McKINSEY & COMPANY is a management consulting firm that helps leading corporations and organizations make distinctive, lasting, and substantial improvements in their performance. Over the past seven decades, the firm's primary objective has remained constant: to serve as an organization's most trusted external advisor on critical issues facing senior management.

TIM KOLLER is a partner in McKinsey's New York office. Tim has served clients in North America and Europe on corporate strategy and issues concerning capital markets, M&A transactions, and value-based management. He leads the firm's research activities in valuation and capital markets issues. He received his MBA from the University of Chicago.

MARC GOEDHART is an associate principal in McKinsey's Amsterdam office. Marc has served clients across Europe on portfolio restructuring, issues concerning capital markets, and M&A transactions. He received a PhD in finance from Erasmus University Rotterdam.

DAVID WESSELS is an adjunct professor of finance and director of executive education at the Wharton School of the University of Pennsylvania. Named by BusinessWeek as one of America's top business school instructors, he teaches corporate valuation at the MBA and Executive MBA levels. David received his PhD from the University of California at Los Angeles.

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Table of Contents

About the Authors ix

Preface xi

Acknowledgments xv

Part One Foundations of Value

1 Why Value Value? 3

2 Fundamental Principles of Value Creation 15

3 The Expectations Treadmill 43

4 Return on Invested Capital 57

5 Growth 79

Part Two Core Valuation Techniques

6 Frameworks for Valuation 101

7 Reorganizing the Financial Statements 131

8 Analyzing Performance and Competitive Position 163

9 Forecasting Performance 185

10 Estimating Continuing Value 211

11 Estimating the Cost of Capital 231

12 Moving from Enterprise Value to Value per Share 267

13 Calculating and Interpreting Results 287

14 Using Multiples to Triangulate Results 303

Part Three Intrinsic Value and the Stock Market

15 Market Value Tracks Return on Invested Capital and Growth 325

16 Markets Value Substance, Not Form 345

17 Emotions and Mispricing in the Market 369

18 Investors and Managers in Efficient Markets 385

Part Four Managing for Value

19 Corporate Portfolio Strategy 401

20 Performance Management 415

21 Mergers and Acquisitions 431

22 Creating Value through Divestitures 455

23 Capital Structure 475

24 Investor Communications 511

Part Five Advanced Valuation Issues

25 Taxes 529

26 Nonoperating Expenses, One-Time Charges, Reserves, and Provisions 543

27 Leases, Pensions, and Other Obligations 559

28 Capitalized Expenses 577

29 Inflation 587

30 Foreign Currency 601

31 Case Study: Heineken 615

Part Six Special Situations

32 Valuing Flexibility 657

33 Valuation in Emerging Markets 689

34 Valuing High-Growth Companies 717

35 Valuing Cyclical Companies 731

36 Valuing Banks 741

Appendix A Economic Profit and the Key Value Driver Formula 765

Appendix B Discounted Economic Profit Equals Discounted Free Cash Flow 769

Appendix C Derivation of Free Cash Flow,Weighted Average Cost of Capital, and Adjusted Present Value 773

Appendix D Levering and Unlevering the Cost of Equity 779

Appendix E Leverage and the Price-to-Earnings Multiple 787

Index 791

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