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

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

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

Thoroughly revised and expanded to reflect business conditionsin today's volatile global economy, Valuation, Fifth Editionprovides up-to-date insights and practical advice on how to create,manage, and measure the value of an organization. Along with allnew case studies that illustrate how valuation techniques andprinciples are applied in real-world situations, this comprehensiveguide has been updated to reflect the events of the real estatebubble and its effect on stock markets, new developments incorporate finance, changes in accounting rules, and an enhancedglobal perspective.

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

  • Analyzing historical performance, including reorganizing acompany's financial statements to reflect economic rather thanaccounting performance
  • Forecasting performance, with emphasis on not just themechanics of forecasting but also how to think about a company'sfuture economics
  • Estimating the cost of capital with practical tips that aren'tfound in textbooks
  • Interpreting the results of a valuation in light of a company'scompetitive situation
  • Linking a company's valuation multiples to the core drivers ofits performance

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

At the crossroads of corporate strategy and finance liesvaluation. Filled with expert guidance and reliable advice,Valuation, Fifth Edition enables everyone from the buddingprofessional 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: 230,804
  • Product dimensions: 7.30 (w) x 10.00 (h) x 1.90 (d)

Meet the Author

McKINSEY & COMPANY is a management consulting firm thathelps leading corporations and organizations make distinctive,lasting, and substantial improvements in their performance. Overthe past seven decades, the firm's primary objective has remainedconstant: to serve as an organization's most trusted externaladvisor 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 corporatestrategy and issues concerning capital markets, M&Atransactions, and value-based management. He leads the firm'sresearch activities in valuation and capital markets issues. Hereceived his MBA from the University of Chicago.

MARC GOEDHART is an associate principal in McKinsey'sAmsterdam office. Marc has served clients across Europe onportfolio restructuring, issues concerning capital markets, andM&A transactions. He received a PhD in finance from ErasmusUniversity Rotterdam.

DAVID WESSELS is an adjunct professor of finance anddirector of executive education at the Wharton School of theUniversity of Pennsylvania. Named by BusinessWeek as one ofAmerica's top business school instructors, he teaches corporatevaluation at the MBA and Executive MBA levels. David received hisPhD from the University of California at Los Angeles.

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Table of Contents

About the Authors.



Part One Foundations of Value.

1 Why ValueValue?

2 Fundamental Principles of Value Creation.

3 The Expectations Treadmill.

4 Return on Invested Capital.

5 Growth.

Part Two Core Valuation Techniques.

6 Frameworks for Valuation.

7 Reorganizing the Financial Statements.

8 Analyzing Performance and Competitive Position.

9 Forecasting Performance.

10 Estimating Continuing Value.

11 Estimating the Cost of Capital.

12 Moving from Enterprise Value to Value per Share.

13 Calculating and Interpreting Results.

14 Using Multiples to Triangulate Results.

Part Three Intrinsic Value and the Stock Market.

15 Market Value Tracks Return on Invested Capital andGrowth.

16 Markets Value Substance, Not Form.

17 Emotions and Mispricing in the Market.

18 Investors and Managers in Efficient Markets.

Part Four Managing for Value.

19 Corporate Portfolio Strategy.

20 Performance Management.

21 Mergers and Acquisitions.

22 Creating Value through Divestitures.

23 Capital Structure.

24 Investor Communications.

Part Five Advanced Valuation Issues.

25 Taxes.

26 Nonoperating Expenses, One-Time Charges, Reserves, andProvisions.

27 Leases, Pensions, and Other Obligations.

28 Capitalized Expenses.

29 Inflation.

30 Foreign Currency.

31 Case Study: Heineken.

Part Six Special Situations.

32 Valuing Flexibility.

33 Valuation in Emerging Markets.

34 Valuing High-Growth Companies.

35 Valuing Cyclical Companies.

36 Valuing Banks.

Appendix A Economic Profit and the Key Value Driver Formula.

Appendix B Discounted Economic Profit Equals Discounted FreeCash Flow.

Appendix C Derivation of Free Cash Flow,Weighted Average Cost ofCapital, and Adjusted Present Value.

Appendix D Levering and Unlevering the Cost of Equity.

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


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