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

by Aswath Damodaran
4.2 out of 5 stars  See all reviews (22 customer reviews)

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Book Description

August 4, 2006 0471751219 978-0471751212 2
"Aswath Damodaran is simply the best valuation teacher around. If you are interested in the theory or practice of valuation, you should have Damodaran on Valuation on your bookshelf. You can bet that I do."
-- Michael J. Mauboussin, Chief Investment Strategist, Legg Mason Capital Management and author of More Than You Know: Finding Financial Wisdom in Unconventional Places

In order to be a successful CEO, corporate strategist, or analyst, understanding the valuation process is a necessity. The second edition of Damodaran on Valuation stands out as the most reliable book for answering many of today?s critical valuation questions. Completely revised and updated, this edition is the ideal book on valuation for CEOs and corporate strategists. You'll gain an understanding of the vitality of today?s valuation models and develop the acumen needed for the most complex and subtle valuation scenarios you will face.

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Damodaran on Valuation: Security Analysis for Investment and Corporate Finance + The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit
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Editorial Reviews

From the Inside Flap

The ability to value any asset is an essential skill in a wide variety of professional environments, from corporate finance to portfolio management to strategy. And while the reasons for doing valuation are as wide-ranging and varied as business itself, the fundamental precepts underlying valuation are surprisingly similar in both form and function.

Damodaran on Valuation, Second Edition provides you with today's most straightforward and comprehensive examination of the approaches and models necessary for performing valuations. Written by renowned teacher, author, and valuation authority Aswath Damodaran, and fully revised and updated from its top-selling first edition—which has become the essential reference for any professional needing accurate and reliable valuation information—this invaluable book now provides you with:

  • In-depth coverage of different distinct valuation approaches and key models within each
  • Techniques for accurately assessing the effect on value of employee stock options and other equity-based compensation
  • Methodologies for using valuation models to value intangible assets—patents, copyrights, trademarks, licenses, brand names, and more
  • Sound strategies for identifying and measuring the value of control in any business and why the expected value of control plays a role in many different valuation contexts
  • Discussion of how liquidity—or, more accurately, illiquidity—affects value, along with ways to measure this impact on value
  • Potential sources of the ever-elusive "synergy" when combining two entities, how best to value each type of synergy, and an examination of why firms so often overpay for synergy
  • Techniques for measuring the costs of accounting opacity and business complexity, and accurately discounting the value of complex firms to promote transparency at every level
  • A commonsense framework you can use to sift through numerous possible valuation models to determine the best model for your valuation task

For more than a decade, Damodaran on Valuation has been the standard valuation reference for professionals in virtually everyfield. Business realities have changed dramatically over that time, but the principles underlying valuation have not. Let this comprehensively revised and updated edition give you the knowledge and tools you need to address today's increasingly complex—and uncompromising—corporate and investment valuation environment.

From the Back Cover

Praise for Damodaran on Valuation


"Aswath Damodaran is simply the best valuation teacher around. If you are interested in the theory or practice of valuation, you should have Damodaran on Valuation on your bookshelf. You can bet that I do."
—Michael J. Mauboussin, Chief Investment Strategist, Legg Mason Capital Management and author of More Than You Know: Finding Financial Wisdom in Unconventional Places

"Damodaran on Valuation is a marvel. The combination of expositional simplicity and conceptual rigor in this book is a rarity in the field of finance; rarer still is the clarity of ideas that simultaneously informs and delights. I do not believe that one can claim to be a serious practitioner—or, for that matter, teacher—of business valuation without mastering the ideas presented in this definitive piece of work."
—Professor Anant K. Sundaram, Faculty Director of Executive Education, Tuck School of Business at Dartmouth College

"Professor Damodaran does an excellent job of incorporating public and private company valuation issues in one volume. It's full of 'how tos' in dealing with difficult technical issues not usually addressed in text books, making it a great discussion tool and resource for both the student and the valuation professional. This is a great addition to any valuation library or training program."
—Scott A. Nammacher, CFA, ASA, Managing Director, Empire Valuation Consultants, LLC

In today's no-room-for-error business environment, the ability to accurately value a company's assets—both tangible and intangible—is essential for a wide variety of professionals, whether they are inside or outside that company. Damodaran on Valuation looks at valuation from the viewpoint of both the internal corporate strategist and the external portfolio manager, addressing issues related to models and techniques for valuing a business and, just as important, explaining their application in either the operation or acquisition of that business.

Damodaran on Valuation explores all aspects of valuation, from the fundamentals of estimating cash flows and discount rates to the principles underlying the use of multiples. In addition, the book addresses what are often left as loose ends in valuation—the value of control and synergy; how best to deal with cash, non-operating assets, and employee stock options when valuing a company; and the consequences of illiquidity, distress, and lack of transparency for asset value.

Whether you are a manager looking to maximize a company's value or an investor looking to beat the market, Damodaran on Valuation will give you the detailed, logical, and sensible answers you need to arrive at an accurate valuation.

Product Details

  • Hardcover: 696 pages
  • Publisher: Wiley; 2 edition (August 4, 2006)
  • Language: English
  • ISBN-10: 0471751219
  • ISBN-13: 978-0471751212
  • Product Dimensions: 10 x 7.3 x 1.5 inches
  • Shipping Weight: 2.9 pounds (View shipping rates and policies)
  • Average Customer Review: 4.2 out of 5 stars  See all reviews (22 customer reviews)
  • Amazon Best Sellers Rank: #99,604 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
28 of 28 people found the following review helpful
4.0 out of 5 stars Good but only short version of another October 26, 2001
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.
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17 of 17 people found the following review helpful
By jelarv
Format:Hardcover|Verified Purchase
I saw the author speak at a conference which prompted me to buy the book. His presentation and book nicely merge theory with practice -- too many valuation books are academic and don't deal with the real-life problems. He seems to anticipate the types of real-life challenges you'll get and then tells you how to handle them (about half the book addresses these "loose ends" that aren't always covered in more basic valuation material). I especially like that he's embraced valuation methods beyond DCF (such as P/E and P/B) because purists tend to dismiss these other methods as too crude for serious consideration(in his book he acknowledges that only 10% of Wall Street valuations are done with DCF). His web site is great for practitioners because you can download the raw numbers for thousands of companies and do the valuation steps he highlights in the book.
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11 of 11 people found the following review helpful
5.0 out of 5 stars Great book on valuation (mainly equity) June 7, 2001
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.
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11 of 11 people found the following review helpful
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.
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10 of 10 people found the following review helpful
5.0 out of 5 stars First Rate March 16, 2001
By Netman1
Format:Hardcover|Verified Purchase
This is an excellent book. It serves as both a course in valuation as well as a useful reference tool.

The book is heavily weighted to discounted cash flow analysis, though it also discusses relative valuation (like P/E multipliers) and contingent claims.

Clearly written the book presents in detail simple to complex DCF based models (dividend discount model, free cashflow to equity and free cashflow to the firm). This range of models deal with the complex valuation problem of variable growth. After presenting a model, its limitations and best uses are explained.

He then shows how these models can be used to derive P/E, P/S, and P/BV ratios from fundamentals.

Abundant examples are used to make the material clear.

The book also discusses special situations, e.g., cyclical firms, and distressed firms to mention just a few.

At first glance this book might be mistaken for a "cook book". Lots of formulas and detailed examples of how to work them.

But there is more. And this is where the real "meat" of the book is - underpinning the seeming forest of details and examples - is a valuation logic and philosophy.

If you read this book carefully, you will develop an appreciation for the impact certain fundamentals have on valuation and how they interact with one another. This is much more important than memorizing the formulae in the book.

Also there is some very useful and frank discussion of shortcomings in some of the tools used, including the CAPM and a warning about being seduced into believing that the DCF approach results in certainty.

Valuation involves estimates and formulas (or multiples) are simplifications of very complex real world dynamics.
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15 of 19 people found the following review helpful
By A Customer
I will not receommend this book for an MBA Investment Finance elective level. It is just too basic in most areas, for that purpose. On the other hand, I have already recommended it to most people who wanted to develop their understanding of stock fundamentals entirely on their own. Since I am a teacher, I would like to see the author include more depth and examples specially in the areas of free cash flows based valuation. Secondly, I would like the area of debt leverage and its impact on stock's stand-alone risk, to be given a more extensive coverage.
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Most Recent Customer Reviews
5.0 out of 5 stars Value for money
Value for money, came to Croatia pretty fast..Recommend to all who want to have closer look to the alpha and omega of the corporate finance.
Published 3 months ago by Ivan
4.0 out of 5 stars Very helpful book!!
I used it for my Corporate Finance class and this book is as thorough as you can get. It made it so easy for me and I easily sailed by the entire semester without taking any... Read more
Published 7 months ago by NS
5.0 out of 5 stars Loved the Book
This was a great book. As of now it is the best Finance book I have ever read. It is an essential reference for learning the basics of how to value stocks and their underlying... Read more
Published 19 months ago by Jonny123
1.0 out of 5 stars Long winded
The book focuses too much on theoretical approaches. The methods are presented in a verbose manner. A lot of the information is irrelevant for practical use.
Published on January 23, 2012 by Bob
5.0 out of 5 stars The bible of valuation and corporate finance
Damodaran is widely known in the academic/financial arena. The second edition clears up many hiccups in the first edition. Read more
Published on October 10, 2011 by J. Lancellotti
1.0 out of 5 stars too theoretical
Good for the classroon, not the real world. Almost a total emphasis on disocunted cash flow, not used much by most practitioners.
Published on April 9, 2010 by M&A player
4.0 out of 5 stars Excellent course material
I purchased this book for a class which I took and found it to be very informative.
Published on December 8, 2009 by Jennifer Errande
5.0 out of 5 stars Amazing book
This is an amazing book for those who want to know everything about valuation.It has all concepts and real examples. Highly recommended.
Published on December 12, 2008 by Cristiano Malucelli
5.0 out of 5 stars A Must Have Text
Damodaran on Valuation is the best tutor on valuation short of sitting in his actual class. Anyone that practices valuation on a regular basis needs to have this book on the... Read more
Published on September 25, 2008 by Seth Elliott
5.0 out of 5 stars the best book regarding vauation's methods
This is the best book which I have in this field. For me this is an Encyclopedia of fundamental analysis
Something what I can recommend
Published on September 22, 2008 by T. Gorski
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