Valuation by McKinsey -- Read -- Imperial Library of Trantor

Index

Cover Series Title Page Copyright About the Authors Preface

Why This Book Structure of the Book Valuation Spreadsheet

Acknowledgments Part One: Foundations of Value

1: Why Value Value?

What Does It Mean to Create Shareholder Value? Can Stakeholder Interests Be Reconciled? Shareholder Capitalism Cannot Solve All Social Issues Consequences of Forgetting Value-Creation Principles Short-Termism Runs Deep This Book Review Questions Notes

2: Fundamental Principles of Value Creation

The Relationship of Growth, ROIC, and Cash Flow Balancing ROIC and Growth to Create Value Real-World Examples Managerial Implications Economic Profit Combines ROIC and Size The Math of Value Creation Summary Review Questions Notes

3: Conservation of Value and the Role of Risk

Conservation of Value Risk and Value Creation Summary Review Questions Notes

4: The Alchemy of Stock Market Performance

Why Shareholder Expectations Become a Treadmill Real-World Effects of the Expectations Treadmill Decomposing TRS Understanding Expectations Managerial Implications Review Questions Notes

5: The Stock Market Is Smarter Than You Think

Markets and Fundamentals: A Model Markets and Fundamentals: The Evidence What about Earnings? Earnings Management Diversification and the Conglomerate Discount Size and Value Market Mechanics Don't Matter Value Creation Is More Important than Value Distribution Summary Review Questions Notes

6: Return on Invested Capital

What Drives ROIC? Competitive Advantage Sustainability of Return on Invested Capital An Empirical Analysis of Returns on Invested Capital Summary Review Questions Notes

7: Growth

Drivers of Revenue Growth Growth and Value Creation Why Sustaining Growth Is Hard Empirical Analysis of Corporate Growth Summary Review Questions Notes

Part Two: Core Valuation Techniques

8: Frameworks for Valuation

Enterprise Discounted Cash Flow Model Economic-Profit-Based Valuation Models Adjusted Present Value Model Capital Cash Flow Model Cash-Flow-to-Equity Valuation Model Other Approaches to Discounted Cash Flow Alternatives to Discounted Cash Flow Summary Review Questions Notes

9: Reorganizing the Financial Statements

Reorganizing the Accounting Statements: Key Concepts Reorganizing the Accounting Statements: In Practice Advanced Issues Review Questions Notes

10: Analyzing Performance

Analyzing Returns on Invested Capital Analyzing Revenue Growth Credit Health and Capital Structure General Considerations Review Questions Notes

11: Forecasting Performance

Determine the Forecast's Length and Detail Components of a Good Model Mechanics of Forecasting Additional Issues Review Questions Notes

12: Estimating Continuing Value

Recommended Formula for DCF Valuation Continuing Value Using Economic Profit Subtleties of Continuing Value Common Pitfalls Evaluating Other Approaches to Continuing Value Advanced Formulas for Continuing Value Closing Thoughts Review Questions Notes

13: Estimating the Cost of Capital

Weighted Average Cost of Capital Estimating the Cost of Equity Estimating the After-Tax Cost of Debt Using Target Weights to Determine the Cost of Capital Complex Capital Structures Closing Thoughts Review Questions Notes

14: Moving from Enterprise Value to Value per Share

Valuing Nonoperating Assets Valuing Debt and Debt Equivalents Valuing Hybrid Securities and Noncontrolling Interests Estimating Value per Share Review Questions Notes

15: Analyzing the Results

Validating the Model Sensitivity Analysis Creating Scenarios The Art of Valuation Review Questions Notes

16: Using Multiples

Value Multibusiness Companies as a Sum of Their Parts Use Forward Earnings Estimates Use Net Enterprise Value Divided by Adjusted EBITA or NOPLAT Adjust for Nonoperating Items Use the Right Peer Group Alternative Multiples Summary Review Questions Notes

17: Valuation by Parts

Valuing by Parts: Mechanics and Insights Building Business Unit Financial Statements Cost of Capital Testing the Value Based on Multiples of Peers Summary Review Questions Notes

Part Three: Advanced Valuation Techniques

18: Taxes

Operating Taxes on the Reorganized Income Statement Converting Operating Taxes to Operating Cash Taxes Deferred Taxes on the Reorganized Balance Sheet Valuing Deferred Taxes Closing Thoughts Review Questions Notes

19: Nonoperating Items, Provisions, and Reserves

Nonoperating Expenses and One-Time Charges Provisions and Their Corresponding Reserves Closing Thoughts Review Questions Notes

20: Leases and Retirement Obligations

Operating Leases Securitized Receivables Pensions and Other Retirement Benefits Closing Thoughts Review Questions Notes

21: Alternative Ways to Measure Return on Capital

Value-Based Returns on Capital: ROIC and CFROI Capitalizing Expensed Investments When Businesses Need Little or No Capital Summary Review Questions Notes

22: Inflation

Inflation Leads to Lower Value Creation Historical Analysis in Times of High Inflation Financial Projections in Real and Nominal Terms Summary Review Questions Notes

23: Cross-Border Valuation

Forecasting Cash Flows Estimating the Cost of Capital Incorporating Foreign-Currency Risk in the Valuation Using Translated Foreign-Currency Financial Statements Summary Review Questions Notes

24: Case Study: Heineken

Reorganizing Financial Statements Analyzing Historical Performance Forecasting Performance Estimating Cost of Capital Estimating Continuing Value Calculating and Interpreting Results Notes

Part Four: Managing for Value

25: Corporate Portfolio Strategy

What Makes an Owner the Best The Best-Owner Life Cycle Dynamic Portfolio Management The Myth of Diversification Constructing the Portfolio Summary Review Questions Notes

26: Performance Management

Adopting a Granular Perspective Choosing the Right Metrics Organizational Support Summary Review Questions Notes

27: Mergers and Acquisitions

Value Creation Framework Empirical Results Archetypes for Value-Creating Acquisitions More Difficult Strategies for Creating Value from Acquisitions Estimating Operating Improvements How to Pay: In Cash or in Stock? Focus on Value Creation, Not Accounting Characteristics of Better Acquirers Summary Review Questions Notes

28: Divestitures

Value Creation from Divestitures Why Executives Shy Away from Divestitures Assessing Potential Value from Divestitures Deciding on Transaction Type Summary Review Questions Notes

29: Capital Structure, Dividends, and Share Repurchases

A Practical Framework Setting a Target Capital Structure Deciding on Payout and Financing Creating Value from Financial Engineering A Comprehensive Case Example Summary Review Questions Notes

30: Investor Communications

Objectives of Investor Communications Intrinsic Value vs. Market Value Which Investors Matter? Communicating with Intrinsic Investors Listening to Investors Earnings Guidance Meeting Consensus Earnings Forecasts Summary Review Questions Notes

Part Five: Special Situations

31: Emerging Markets

Historical Analysis Forecasting Cash Flows Incorporating Country Risk in Scenario DCF Valuation Estimating Cost of Capital in Emerging Markets Calculating and Interpreting Results Summary Review Questions Notes

32: Valuing High-Growth Companies

A Valuation Process for High-Growth Companies Uncertainty Is Here to Stay Summary Review Questions Notes

33: Cyclical Companies

Share Price Behavior An Approach to Valuing Cyclical Companies Implications for Managing Cyclical Companies Summary Review Questions Notes

34: Banks

Economics of Banking Principles of Bank Valuation Complications in Bank Valuations Summary Review Questions Notes

35: Flexibility

Uncertainty, Flexibility, and Value Managing Flexibility Methods for Valuing Flexibility Four Steps to Valuing Flexibility Real-Option Valuation and Decision Tree Analysis: A Numerical Example Summary Review Questions Notes

Appendix A: Discounted Economic Profit Equals Discounted Free Cash Flow

Proof Using Perpetuities Generalized Proof Note

Appendix B: Derivation of Free Cash Flow, Weighted Average Cost of Capital, and Adjusted Present Value

Enterprise Discounted Cash Flow Adjusted Present Value Notes

Appendix C: Levering and Unlevering the Cost of Equity

Unlevered Cost of Equity Levered Cost of Equity Levered Beta

Appendix D: Leverage and the Price-to-Earnings Multiple

Step 1: Defining Unlevered P/E Step 2: Linking Net Income to NOPLAT Step 3: Deriving Levered P/E

Appendix E: Other Capital Structure Issues

Pecking-Order Theory Market-Based Rating Approach Leverage, Coverage, and Solvency Notes

Appendix F: Technical Issues in Estimating the Market Risk Premium

Notes

Index EULA

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