McKinsey & Company's bestselling guide to teaching corporate valuation - the fully updated seventh edition
Valuation: Measuring and Managing the Value of Companies, University Edition is filled with the expert guidance from McKinsey & Company that students and professors have come to rely on for over nearly three decades. Now in its seventh edition, this acclaimed volume continues to help financial professionals and students around the world gain a deep understanding of valuation and help their companies create, manage, and maximize economic value for their shareholders.
This latest edition has been carefully revised and updated throughout, and includes new insights on topics such as digital, ESG (environmental, social and governance), and long-term investing, as well as fresh case studies. For thirty years, Valuation has remained true to its basic principles and continues to offer a step-by-step approach to teaching valuation fundamentals, including:
- Analyzing historical performance
- Forecasting performance
- Estimating the cost of capital
- Interpreting the results of a valuation in context
- Linking a company's valuation multiples to core performance drivers
The University Edition contains end-of-chapter review questions to help students master key concepts from the book.
Wiley also offers an Online Instructor's Manual with a full suite of learning resources to complement valuation classroom instruction.
Table of Contents
About the Authors ix
Preface xi
Acknowledgments xv
Part One Foundations of Value
1 Why Value Value? 3
Review Questions 16
2 Finance in a Nutshell 17
Review Questions 26
3 Fundamental Principles of Value Creation 27
Review Questions 54
4 Risk and the Cost of Capital 55
Review Questions 68
5 The Alchemy of Stock Market Performance 69
Review Questions 83
6 Valuation of ESG and Digital Initiatives 85
Review Questions 100
7 The Stock Market Is Smarter Than You Think 101
Review Questions 129
8 Return on Invested Capital 131
Review Questions 158
9 Growth 159
Review Questions 178
Part Two Core Valuation Techniques
10 Frameworks for Valuation 181
Review Questions 209
11 Reorganizing the Financial Statements 211
Review Questions 245
12 Analyzing Performance 247
Review Questions 267
13 Forecasting Performance 269
Review Questions 295
14 Estimating Continuing Value 299
Review Questions 318
15 Estimating the Cost of Capital 321
Review Questions 350
16 Moving from Enterprise Value to Value per Share 353
Review Questions 374
17 Analyzing the Results 377
Review Questions 387
18 Using Multiples 389
Review Questions 412
19 Valuation by Parts 415
Review Questions 434
Part Three Advanced Valuation Techniques
20 Taxes 439
Review Questions 453
21 Nonoperating Items, Provisions, and Reserves 455
Review Questions 471
22 Leases 473
Review Questions 486
23 Retirement Obligations 489
Review Questions 498
24 Measuring Performance in Capital-Light Businesses 499
Review Questions 514
25 Alternative Ways to Measure Return on Capital 515
Review Questions 524
26 Inflation 525
Review Questions 539
27 Cross-Border Valuation 541
Review Questions 559
Part Four Managing for Value
28 Corporate Portfolio Strategy 563
Review Questions 583
29 Strategic Management: Analytics 585
Review Questions 608
30 Strategic Management: Mindsets and Behaviors 609
Review Questions 623
31 Mergers and Acquisitions 625
Review Questions 653
32 Divestitures 655
Review Questions 674
33 Capital Structure, Dividends, and Share Repurchases 675
Review Questions 708
34 Investor Communications 709
Review Questions 731
Part Five Special Situations
35 Emerging Markets 735
Review Questions 752
36 High-Growth Companies 753
Review Questions 768
37 Cyclical Companies 769
Review Questions 777
38 Banks 779
Review Questions 805
39 Flexibility 807
Review Questions 841
Appendix A Discounted Economic Profit Equals Discounted Free Cash Flow 843
Appendix B Derivation of Free Cash Flow, Weighted Average Cost of Capital, and Adjusted Present Value 849
Appendix C Levering and Unlevering the Cost of Equity 855
Appendix D Leverage and the Price-to-Earnings Multiple 863
Appendix E Other Capital Structure Issues 867
Appendix F Technical Issues in Estimating the Market Risk Premium 873
Appendix G Global, International, and Local CAPM 877
Appendix H A Valuation of Costco Wholesale 885
Appendix I Two-Stage Formula for Continuing Value 909
Index 911
