Customer Reviews

Valuation: Measuring and Managing the Value of Companies, 2nd Edition

5 star:		(12)
4 star:		(5)
3 star:		(8)
2 star:		(6)
1 star:		(6)

 

 

This was the text book for an advanced seminar on Valuation that I took in my MBA program, and I have a feeling the professor will not use this text book ever again. The problem is, as another reviewer observed, these McKinsey guys take great care not to reveal any trade secrets in their text. Therefore you will notice that there is an unusual amount of prose, and a conspicuous lack of financial formulae in this text book. Our professor had to prepare supplemental lecture notes chock full of formulae, exercises, and examples because she realized that much of what is really needed to learn Valuation is not covered, but only mentioned or alluded to in this book. For example, everyone accepts that a controlling interest in a firm is worth more than a minority interest in a firm, and Copeland et. al. mention that discounts and premiums may be necessary to accomodate for this situation, but they give no guidance in calculating such premiums. Further, this book is all about discounted cash flow analysis, which is really only one of several valuation methods. No space is given to relative valuation or the interpretation of multiples such as P/E. The authors' reason for shunning relative valuation is flimsy at best (they argue that relative valuation doesn't help you if you are investing in an industry in which ALL firms are over-valued by the Market).

There are two different groups who might be interested in valuation: investors who want to use valuation techniques to make passive investments in public companies, like Warren Buffett; and entrepreneurs / managers who are charged with the job of buying or selling business assets for their firms. To the first group, I recommend the Valuation books of Aswath Damodaran (my favorite is "The Dark Side of Valuation"). Not only is Damodaran's treatment of the subject matter more complete, but he is much clearer in his explanations because he is not afraid to use an occasional formula (the rule of thumb is that for every formula omitted a writer will have to add an additional two pages of prose just to explain the concepts). Plus, readers get access to Damodaran's web page, which is an amazing supplement full of downloadable excel spreadsheets, PDF files, examples, problem sets, etc., all free to purchasers of his books.

To the second group, I recommend the works of Shannon Pratt et. al., especially Valuing a Business, Valuing Intangible Assets, etc. Pratt is a professional Valuation expert, who is often hired by lawyers, accountants, and business owners to appraise businesses, projects, and assets. Pratt's books represent the state of the art, and cover all techniques in encyclopedic fashion. For my MBA class a Valuation expert from a Big 5 firm came to speak to us one day about her work, and much of the techniques she uses are consistent with Pratt's own writing.

The only reason to read this book is as a bathtub refresher book after you have already studied the techniques of valuation and just want to read what someone else has written about the subject. Remember, though, reading a descriptive book about the French language is not the same as learning to speak it yourself!

The first part of the book covers very basic material that may be found anywhere on the Internet or in a beginner's finance text book. This portion will be valuable only to introductory students of the subject.

The second two parts, which deal with actual valuation techniques, are very verbose, but lacking in organization and depth. This half assumes that you are already familiar with concepts such as WACC, Free Cash Flows, and other accounting and valuation terms. Although several valuation techniques are indeed discussed, by no means is the list comprehensive. Furthermore, no systematic approach to deriving or explaining the formulas is available, and often, terms not introduced earlier are used.

On the positive side, however, the book makes easy reading and focuses on a more practical, rather than academic or theoretical, discussion of valuation.

This book may not provide much value to a serious student of valuation. Furthermore, I do not believe it will make an ideal reference for the experienced professional either. At best, it will make a good second reference for a graduate level course in valuation.

This book provides excellent information about the DCF Valuation process. The reader will learn how to develop the model and where to input the various data, as well as understand how to justify some of the assumptions such as cost of equity. The disk that accompanies the hardcover addition will be very useful to some practitioners, although analysts with strong modeling skills will likely want to create their own spreadsheet. The book, however, is not a comprehensive guide to valuation, as it does not discuss other methods such as the peer group comparison. Nonetheless, it is an excellent reference book on the topic of DCF Valuation, and it belongs on every financial analyst's desk.

I am an MBA student at Univ. of Texas at Austin, and am an avid reader of corporate finance literature, research. This book is the finest that I have ever come across, and bridges the gap between things I know and things that I can teach myself. If you are a person who needs to know the nitty-gritty details, I recommend this book along with Damodaran on Valuation. This book covers broad topics extremely well, and Damodaran on Valuation gives u the nitty-gritty detail

This book is well researched, well structured, well written. From a scientific point of view, however, there are 2 topics Mr CCopeland should improve in his next edition: (1) He should write more on CFROI and CVA (Cash-Value-Added) (2) Improve the chapter on forecsting future performance

(1) His treatment of CVA was a bit unfair, because it was invented by Boston Consulting - McKinsey_#s arch enemy Nr.1. It is true, that CVA has got downsides, but ist seems that Mr Copeland did not see, or did not understand, that CVA has got a large advantage vs EVA/FCF-Valuation: It can be aligned with Strategy because you can simulate future performance more easily That means: If you use CVA, you can simulate how - experience curve effects change CVA - changes in lead time change CVA - slashing the number of product variants change CVA.

If you try to do this with FCF-Valuation, you go nuts, because to forecast FCF you must -evaluate the companys strategy first and -forecast future cash flows over a ten year horizon for dozens of scenarios. The step form strategy to scenario opens the door for manipulations, and in most cases a consultant will simply use an ROIC-Tree with generic value drivers.

If you tell a production manager to 'optimize his COGS/Sales ratio' he'll tell you that your nuts.

All-in-all this book is still a must read for beginners. -

This book is useful if you're already quite familiar with common valuation methods and can fill in the jumps & gaps. However, if any of the areas you're looking at is new to you or if you would like a more logical, well-reasoned approach or simply a discussion of all the various valuation methods in use, buy Damodaran's text instead.

This book was the prescribed & provided reference in the Corporate Finance department I worked in but most of my colleagues and I purchased our own copies of Damodaran's text "Investment Valuation, Wiley, Aswath Damodaran", which is superior in breadth as well as logical description of valuation processes.

The ultimate, common sense, technical "how to" manual on valuation. This book embodies the entire McKinsey institutional knowledge on valuation (I know - I used to work there).

However, a significant note of caution! In the immortal words of Chuang Tzu " Nobody ever became a great horseman by talking about horses". If it were as simple as following the recipe book, would McKinsey have published their state secrets? Good valuation work requires very considerable experience and judgement. Tinker with a few assumptions (especially continuing value assumptions) and you can double or halve your valuation.

The greatest potential danger with this book is that you will lull your self into a false sense of security through rigorous adherence to the minutiae of the process. EXPERIENCE MATTERS A LOT IN THE APPLIATION OF THIS PROCESS.

That said, in the hands of a knowledgable and thoughtful user, you will not find a better guide to valuation. If only half of the CEO's out there would read it!

I liked this book. In Russia it is one of the most popular books on valuatuion. But when I can get the perfect excel support for Investment Valuation by Aswath Damodaran or good web support for Valuation Methods and Shareholder Value Creation by Pablo Fernandez, I ask the authors, why don't they put supporting material in disk? I think that the price of their sowtware ($94.50) is too high compairing with the book ($56 with discount), because there is no supporting materials - only 1 spreadsheet (from my point of view does not conform to McKinsey, as the leader of consulting business). I hope, for the 4-th edition we will have a good excel support.

This book has been hailed as a classic by many professionals, and it is easy to see why: It is well-organized, and it provides excellent examples and case studies. Another reader commented that those who want an introduction to this topic is "wasting their time and money." I believe otherwise. If you have a strong interest in the subject, this book will prove very usable. I was surprised that this book was not very math-intensive since the authors assume that the reader already has a rudimentary understanding of finance and accounting. Robert Higgins' "Analysis for Finance Management" is an excellent companion to "Valuation."

Although Mr. Copeland's conceptual presentation and arguments for using FCF as the ultimate basis for performance and valuation is indeed compelling, the book falls as a practitioners' guide. Why ? Because Mr. Copeland never addresses a reality that all financial analysts confront ... accessibility / availability / integrity of data on which the analysis is grounded on, particularly when he focuses on subsidiaries of parent companies. Try valuing any one of GE's subsidiaries using Mr. Copeland's prescription ... good luck.

Warning: familiarize yourself w/ accounting principles before reading this. If you aren't, you won't hesitate returning the book back to the book store.