Valuation. Measuring and Managing the Value of Companies. Edition No. 8. Wiley Finance

Table of Contents

v ftoc v 13 February 2025 5:52 pm Contents About the Authors ix Preface xi Acknowledgments xv Part One Foundations of Value 1 Why Value Value? 3 2 Finance in a Nutshell 13 3 Fundamental Principles of Value Creation 23 4 Risk and the Opportunity Cost of Capital 49 5 The Alchemy of Stock Market Performance 63 6 The Stock Market and Economic Fundamentals 77 7 The Stock Market Is Smarter than You Think 97 8 Return on Invested Capital 117 9 Growth 147 Part Two Core Valuation Techniques 10 Frameworks for Valuation 171 11 Reorganizing the Financial Statements 201 12 Analyzing Performance 235 13 Forecasting Performance 255 vi CONTENTS ftoc vi 13 February 2025 5:52 pm ftoc vii 14 Estimating Continuing Value 283 15 Estimating the Cost of Capital 303 16 Moving from Enterprise Value to Value per Share 333 17 Analyzing the Results 355 18 Using Multiples 365 19 Valuation by Parts 385 Part Three Advanced Valuation Techniques 20 Taxes 407 21 Nonoperating Items, Provisions, and Reserves 423 22 Leases 439 23 Retirement Obligations 455 24 Measuring Performance in Capital-Light Businesses 465 25 CFROI and Other Ways to Measure Return on Capital 481 26 Inflation 491 27 Cross-Border Valuation 511 Part Four Managing for Value 28 Corporate Portfolio Strategy 531 29 Strategic Management: Analytics 551 30 Strategic Management: Governance, Processes, and Decision Making 573 31 Mergers and Acquisitions 589 32 Divestitures 617 33 Digital Initiatives and Companies 633 34 Sustainability 653 35 Capital Structure, Dividends, and Share Repurchases 671 36 Investor Communications 703 Part Five Special Situations 37 Leveraged Buyouts 729 38 Venture Capital 749 CONTENTS vii 2025 5:52 pm ftoc vii 13 February 2025 5:52 pm 39 High-Growth Companies 763 40 Flexibility and Options 779 41 Emerging Markets 815 42 Cyclical Companies 833 43 Banks 843 Appendix A Discounted Economic Profit Equals Discounted Free Cash Flow 865 Appendix B Derivation of Free Cash Flow, Weighted Average Cost of Capital, and Adjusted Present Value 869 Appendix C Levering and Unlevering the Cost of Equity 875 Appendix D Leverage and the Price-to-Earnings Multiple 883 Appendix E Other Capital Structure Issues 887 Appendix F Technical Issues in Estimating the Market Risk Premium 891 Appendix G Global, International, and Local CAPM 895 Appendix H Two-Stage Formula for Continuing Value 903 Appendix I A Valuation of Costco Wholesale 905 Index 931     About the Authors ix Preface xi Acknowledgments xv Part One Foundations of Value 1 Why Value Value? 3 2 Finance in a Nutshell 13 3 Fundamental Principles of Value Creation 23 4 Risk and the Opportunity Cost of Capital 49 5 The Alchemy of Stock Market Performance 63 6 The Stock Market and Economic Fundamentals 77 7 The Stock Market Is Smarter than You Think 97 8 Return on Invested Capital 117 9 Growth 147 Part Two Core Valuation Techniques 10 Frameworks for Valuation 171 11 Reorganizing the Financial Statements 201 12 Analyzing Performance 235 13 Forecasting Performance 255 vi CONTENTS ftoc vi 13 February 2025 5:52 pm ftoc vii 14 Estimating Continuing Value 283 15 Estimating the Cost of Capital 303 16 Moving from Enterprise Value to Value per Share 333 17 Analyzing the Results 355 18 Using Multiples 365 19 Valuation by Parts 385 Part Three Advanced Valuation Techniques 20 Taxes 407 21 Nonoperating Items, Provisions, and Reserves 423 22 Leases 439 23 Retirement Obligations 455 24 Measuring Performance in Capital-Light Businesses 465 25 CFROI and Other Ways to Measure Return on Capital 481 26 Inflation 491 27 Cross-Border Valuation 511 Part Four Managing for Value 28 Corporate Portfolio Strategy 531 29 Strategic Management: Analytics 551 30 Strategic Management: Governance, Processes, and Decision Making 573 31 Mergers and Acquisitions 589 32 Divestitures 617 33 Digital Initiatives and Companies 633 34 Sustainability 653 35 Capital Structure, Dividends, and Share Repurchases 671 36 Investor Communications 703 Part Five Special Situations 37 Leveraged Buyouts 729 38 Venture Capital 749 CONTENTS vii 2025 5:52 pm ftoc vii 13 February 2025 5:52 pm 39 High-Growth Companies 763 40 Flexibility and Options 779 41 Emerging Markets 815 42 Cyclical Companies 833 43 Banks 843 Appendix A Discounted Economic Profit Equals Discounted Free Cash Flow 865 Appendix B Derivation of Free Cash Flow, Weighted Average Cost of Capital, and Adjusted Present Value 869 Appendix C Levering and Unlevering the Cost of Equity 875 Appendix D Leverage and the Price-to-Earnings Multiple 883 Appendix E Other Capital Structure Issues 887 Appendix F Technical Issues in Estimating the Market Risk Premium 891 Appendix G Global, International, and Local CAPM 895 Appendix H Two-Stage Formula for Continuing Value 903 Appendix I A Valuation of Costco Wholesale 905 Index 931