Customer Reviews

Valuation Methods and Shareholder Value Creation

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In his new book on valuation, Pablo Fernandez presents and analyzes a variety of valuation methods. The book is comprehensive in covering ALL of the methods and contains a wealth of information, data and examples on the relevant topics. The book is a valuable source for obtaining details on the different methods. However, there is a risk, although small, that the number of trees may overwhelm the reader and the reader may miss the forest.
In Part III, which is the theoretical part of the book, he examines all the various approaches for Discounted Cash Flow Valuation. In particular, Pablo Fernandez makes the unusual claim that for FCF in perpetuity with a constant growth rate of g, the discounted value of the tax shield (DVTS) is not the present value of the tax shield (PVTS). Furthermore, he defines the PVTS as follows: PVTS = T*D*Ku/(Ku - g). At first sight, this definition of the PVTS seems very strange. To obtain this result, which is in direct contradiction with the formulas in Copeland's book, he assumes that the return to levered equity Ke does not depend on whether the growth rate is zero or nonzero. This departure from the accepted definition of the PVTS may surprise those readers who are familiar with other books on valuation.
In common with other books on valuation, the examples on the cost of capital are restricted to cash flows in perpetuity. Without providing the necessary justification, the author assumes that the formulas for the cost of capital carry over to finite cash flows. The book would be strengthened if there were numerical examples that linked the discussion on the cost of capital directly to the finite cash flow statements that are derived from the usual financial statements.

A great book with clear explanations and excellent support web site.
The book describes many tools on how to do the valuation (DCF, ratios, real options etc.). I particularly like the explanation of eight models of DCF. Chapters 19, 20 and 21 are the best ones I have ever read about discounted cash flow valuation.
For finance professionals, "Valuation methods and shareholder value creation" is a wonderful book to study, to keep and to look up for reference. I strongly recommend investment bankers (and clients), finance managers and MBAs to have one.
It explains Adjusted Present Value much better than Copelands and Damodaran's books. Now, I understand it!!!