Damodaran on Valuation: Security Analysis for Investment and Corporate Finance [Hardcover]

Aswath Damodaran (Author)

Book Description

ISBN-10: 0471304654 | ISBN-13: 978-0471304654 | Publication Date: March 31, 1994 | Edition: 1

Damondaran on Valuation will not only convince you of the vitality of the many valuation models available to you, it will help ensure that you develop the acumen needed to select the right model for any valuation scenario.

Written by a gifted teacher and respected valuation authority, Damodaran on Valuation offers systematic examination of the three basic approaches to valuation - discounted cash-flow valuation, relative valuation, and contingent claim valuation - and the various models within these broad categories.

Using numerous real-world examples involving both US and International firms, the book illuminates the purpose of each particular model, its advantages and limitatations, the step-by-step process involved in putting the model to work, and the kinds of firms to which it is best applied. Among the tools presented are designed to:
* Estimate the cost of equity - including the capital asset pricing model and arbitrage pricing model
* Estimate growth rates - with coverage of how to arrive at a weighted average of growth rates by blending three separate approaches
* Value equity - focusing on the Gordon Growth Model and the two-and three-stage dividend discount model
* Measure free cash flow to equity - cash flows that are carefully delineated from the dividends of most firms
* Value firms - including free cash flow to firm models, which are especially suited to highly leveraged firms
* Estimate the value of assets by looking at the pricing of comparable assets - with insight into the use and misuse of price/earning and price/book value ratios, and underutilized price-to-sales ratios
* Measure the value of assets that share option characteristics - including a comparative look at the classic Black-Scholes and simpler binomial models.

Supported by an optional IBM-compatible disk, which consists of spreadsheet programs designed to help users apply the models highlighted in the book, Damodaran on Valuation provides practitioners involved in securities analysis, portfolio management, M&A, and corporate finance with the knowledge they need to value any asset.

Editorial Reviews

From the Publisher

An applications-oriented, extensive and up-to-date exploration of the theory and practice of valuation. Uses actual examples from existing firms to explain the value and limitations of models in order to illustrate key techniques. Features a thorough study of a wide range of firms in which direct application of typical models often breaks down--problems in valuing these companies are pinpointed and potential solutions suggested. Special sections deal with subtler valuation issues including the value of synergy in controlling mergers and the value of product options that firms may possess. --This text refers to an out of print or unavailable edition of this title.

From the Inside Flap

Damodaran on Valuation Ideally, the price paid for any asset should reflect the expected cash flow on that asset—but there are two problems that arise in every valuation. The first is that estimating cash flows is an exercise fraught with uncertainty, and the second is that picking the right model to use in valuing an asset is seldom easy. This can lead to significant errors in valuation. Sophisticated practitioners can accurately and consistently determine the value of all types of assets, when they rely on the seasoned advice found in Damodaran on Valuation. This applications-oriented tool covers the full range of available valuation models. It also presents the common elements within these models as well as the subtle variations, debunks the myth concerning their utility, and provides a framework for selecting the right model for any valuation scenario. Damodaran on Valuation systematically examines the three basic approaches to valuation—discounted cash-flow valuation, relative valuation, and contingent claim valuation—and the various models within these broad categories. With the help of numerous real-world examples involving both U.S. and international firms, the book illuminates the purpose of each particular model, its advantages and limitations, the step-by-step process involved in putting the model to work, and the kinds of firms to which it is best applied. Among the tools presented are those designed to:

• Estimate the cost of equity—including the capital cost pricing model and arbitrage pricing model
• Estimate growth rates—with coverage of how to arrive at a weighted average of growth rates by blending three separate approaches
• Value equity—focusing on the Gordon Growth Model and the two- and three-stage dividend discount model
• Measure free cash flows to equity—assets that are carefully delineated from the dividends of most firms
• Value firms—including free cash flow to firm models, which are especially suited to highly leveraged firms
• Estimate the value of assets by looking at the pricing of comparable assets—with insight into the use and misuse of price/earning and price/book value ratios, and underutilized price-to-sales ratios
• Measure the value of assets that share option characteristics—including a comparative look at the classic Black-Scholes and simpler binomial models

Supported by an optional IBM-compatible disk, which consists of spreadsheet programs designed to help users apply the models highlighted in the book, Damodaran on Valuation provides practitioners involved in securities analysis, portfolio management, M&A, and corporate finance with the knowledge they need to value any asset. --This text refers to an out of print or unavailable edition of this title.

See all Editorial Reviews

Product Details

• Hardcover: 464 pages
• Publisher: Wiley; 1 edition (March 31, 1994)
• Language: English
• ISBN-10: 0471304654
• ISBN-13: 978-0471304654
• Product Dimensions: 9 x 6.2 x 1.5 inches
• Shipping Weight: 1.8 pounds
• Average Customer Review: 4.1 out of 5 stars  See all reviews (9 customer reviews)
• Amazon Best Sellers Rank: #705,507 in Books (See Top 100 in Books)

More About the Author

Aswath Damodaran is a professor of finance and David Margolis teaching fellow at the Stern School of Business at New York University. He teaches the corporate finance and equity valuation courses in the MBA program. He received his MBA and PhD from the University of California at Los Angeles. His research interests lie in valuation, portfolio management, and applied corporate finance. He has been published in the Journal of Financial and Quantitative Analysis, the Journal of Finance, the Journal of Financial Economics, and the Review of Financial Studies. He has written three books on equity valuation (Damodaran on Valuation, Investment Valuation, and The Dark Side of Valuation) and two on corporate finance (Corporate Finance: Theory and Practice, Applied Corporate Finance: A User's Manual). He has coedited a book on investment management with Peter Bernstein (Investment Management) and has written a book on investment philosophies (Investment Philosophies). His newest book on portfolio management is titled Investment Fables and was published in 2004. He was a visiting lecturer at the University of California, Berkeley, from 1984 to 1986, where he received the Earl Cheit Outstanding Teaching Award in 1985. He has been at NYU since 1986 and received the Stern School of Business Excellence in Teaching Award (awarded by the graduating class) in 1988, 1991, 1992, 1999, 2001, and 2007, and was the youngest winner of the University-wide Distinguished Teaching Award (in 1990). He was profiled in Business Week as one of the top 12 business school professors in the United States in 1994.

Customer Reviews

Most Helpful Customer Reviews

22 of 22 people found the following review helpful:

4.0 out of 5 stars Good but only short version of another, October 26, 2001

By 

Chung-Yin Cheng (Toronto, Ontario, Canada) - See all my reviews

This review is from: Damodaran on Valuation: Security Analysis for Investment and Corporate Finance (Hardcover)

As everyone will agree, this is a good book in valuation tools. With different version of the DCF models, this book is one of the ideal desk reference of security analysis. However, if you also look at the book "Investment Valuation" by Professor Damodaran, you will agree that this one is only a short version of "Investment Valuation". Almost every topic is covered (or copied) from "Investment Valuation".
I gave "Investment Valuation" a 5-star rating. So, for its short version, I give 4-star.

11 of 11 people found the following review helpful:

4.0 out of 5 stars Excellent review of several valuation techniques though..., March 18, 2000

By 

R. J. Finkman (Buenos Aires) - See all my reviews
(REAL NAME)   

This review is from: Damodaran on Valuation: Security Analysis for Investment and Corporate Finance (Hardcover)

Professor Damodaran wrote the most comprehensive introductory books on Valuation I ever read. He covers discounted cash flow, relative valuation and the -still- less accepted contingent claim valuation. In addition, he presents simple solutions to complicated problems. Having in mind its introductory and (almost) self-teaching nature, the book is hard to criticize. Nevertheless, a couple of things should be mentioned to warned the potential reader. First, several issues that Damodaran presents as (almost) unquestionable are actually a matter of dispute among financial analytst. Second, multifactorial models -APT like- deserve much more analyisis. Third, the lack of emphasis on international investments is striking. Fourth, it lacks an analysis on preparing/estimating proforma financial statements. It might seem as a lot of objections but they are not... The book is a must.

10 of 10 people found the following review helpful:

5.0 out of 5 stars Great book on valuation (mainly equity), June 7, 2001

By 

"bhaskarch" - See all my reviews

This review is from: Damodaran on Valuation: Security Analysis for Investment and Corporate Finance (Hardcover)

The book is mainly aimed at valuation practitioners and MBA sudents. The book deals with 3 valuation techniques- DCF, relative valuation (based on PE, P/BV, PS multiples) and contingent claims (options). Great insights into determining key variables (PE, PS, P/BV) based on business fundamentals and pro and cons of using each approach. However, the book does not go into enough depth in CAPM and APT. The author assumes that the reader would have a fair idea about financial ratios, fundamentals etc. The best part of the book deals with valuation of special cases like cyclical firms, brands etc. and how corporate restructuring affects value. It also provides great insights into valuation for takeovers and mergers. The author provides a usable framework for valuing intangibles in an acquisition target- what the different sources of synergy are and how to value each in a lucid framework. Overall, a good book to gain a firm footing in investment valuation techniques.