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Value: The Four Cornerstones of Corporate Finance 1st Edition

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ISBN-13: 978-0470424605
ISBN-10: 0470424605
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Frequently Bought Together

Value: The Four Cornerstones of Corporate Finance + Valuation Workbook: Step-by-Step Exercises and Tests to Help You Master Valuation + Valuation: Measuring and Managing the Value of Companies, 5th Edition
Price for all three: $95.23

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Editorial Reviews

Review

marches the reader through the very practical issues that affect value. (Financial Times, November 2010).

From the Inside Flap

From the team behind Valuation—the #1 bestselling reference on corporate finance—comes a decision-making guide for all executives to use as they create, manage, and sustain shareholder value.

Corporate leaders are regularly confronted with conventional wisdom and half-truths about value creation. They're given conflicting advice about what will or won't appeal to investors, often contradicting their own judgment about what builds lasting worth in their companies and the economy.

In Value: The Four Cornerstones of Corporate Finance, partners from the management consulting firm of McKinsey & Company describe the basic principles of value creation and their relevance. Internalizing these principles—or cornerstones—gives decision makers the independence and courage they need to challenge conventional wisdom, defy half-truths, and build thriving businesses.

The four cornerstones are:

  • The Core of Value: a business's value is driven by its growth and return on capital, and resulting cash flows

  • The Conservation of Value: value is created when companies generate higher cash flows, not by simply rearranging investors' claims on cash flows

  • The Expectations Treadmill: movements in company share prices reflect changes in the stock market's expectations, not just underlying performance

  • The Best Owner: the value of a business is not an absolute but, rather, depends on who is managing it and the strategy pursued

While there are many books that cover selected topics within corporate finance—often for specialized practitioners—it's the rare book that offers leaders a unifying viewpoint of business. Value is that book.

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Product Details

  • Hardcover: 272 pages
  • Publisher: Wiley; 1 edition (November 9, 2010)
  • Language: English
  • ISBN-10: 0470424605
  • ISBN-13: 978-0470424605
  • Product Dimensions: 6.3 x 0.9 x 9.3 inches
  • Shipping Weight: 1.5 pounds (View shipping rates and policies)
  • Average Customer Review: 4.4 out of 5 stars  See all reviews (30 customer reviews)
  • Amazon Best Sellers Rank: #19,607 in Books (See Top 100 in Books)

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Most Helpful Customer Reviews

16 of 16 people found the following review helpful By Brian Stolz on January 26, 2011
Format: Hardcover Verified Purchase
Value is one of the best books I've read that cuts to the core of how businesses should operate. It focuses the reader on the four ways that value is created and guides us through both business and market implications for companies who create value versus those that focus on the wrong things. Messrs. Koller, Dobbs and Huyett cover a number of topics that any business leader or investor would find useful.

The first part of the book identifies the four pillars of value and helps to answer the following questions:
1) When is growth or return on invested capital more important? How does each increase value?
2) How do you identify activities that add value versus ones either diminish value or shift risk around?
3) How do you spot a company on the wrong end of the "expectations treadmill" and what are the implications?
4) How can you take advantage of the "Best Owner" principle? What are the implications for M&A?

In the second part of the book, the authors break down the stock market in aggregate. They help the reader understand how the market works, compare the link between interest rates and inflation with P/E performance over the last 100 years, model the stock market and explain where and why stock market bubbles occur. Next, they discuss the problems with earnings management and show what a poor job "consensus earnings" do at actually forecasting the future. Their message to managers is just don't do it.

In part three, the authors dive into value creation and discuss what drives return on capital. They break down return on invested capital by industry segment from 1965-2007 and provide the reader with insights into why some industries perform better than others.
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8 of 8 people found the following review helpful By Hubert Shea on April 16, 2011
Format: Hardcover
There is no universal agreement on how to create value for corporate owners and investors. According to three leading management experts from McKinsey & Company, value creation should exclude the adoption of financial engineering, leverage, and changing accounting techniques which create short-term and illusory impact on corporate financial performance (chapter 15) and do not add "real" value to corporate owners and investors in the long perspective.

This book introduces four key principles or cornerstones of lasting value creation, including the core of value, the conservation of value, the expectation treadmill, and the best owner. The first principle places great emphasis on twin drivers of value creation, namely ROIC and revenue growth. This book dispels the widely-held assertion that revenue growth can automatically increase ROIC. When all else being equal, companies trading at higher multiples are as a result higher returns on invested capital instead of putting a blind faith on pure revenue growth opportunities which can reduce ROIC (P.25).

The second principle is corollary to the first principle in which "business does not increase cash flows does not create value" (P.29). It is heterogeneous to the adoption of capital restructuring exercise (debt/equity or share repurchase) or changing accounting practices to shift ownership claims to cash flows because they do not change the total available cash flows. By illustrating the adoption of collateralized debt obligations (CDO) as an example, total cash flows received by CDO holders are less than as if they directly own the loans.

The third principle postulates that value is reflected in how investors (intrinsic, trading, mechanical, and closet indexes) (P.213) expect and assess future share performance.
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2 of 2 people found the following review helpful By AnitaGibbs on April 13, 2013
Format: Hardcover Verified Purchase
I bought this book together with Valuation Workbook: Step-by-Step Exercises and Tests to Help You Master Valuation (Wiley Finance)and Valuation: Measuring and Managing the Value of Companies, 5th Edition. I think you only really need this workbook together with Valuation Workbook: Step-by-Step Exercises and Tests to Help You Master Valuation (Wiley Finance).
This book is basically a well summarised and much more succinct version of Valuation: Measuring and Managing the Value of Companies, 5th Edition - so I would skip the Valuation book
Together they give you an excellent understanding on how to value a company and what is important for increase company valuation.
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Format: Hardcover
More than twenty years ago McKinsey & Company published the book Valuation. It became the de facto required reading for the coming generations of aspiring young equity analysts and portfolio managers struggling to master the craft of performing a cash flow valuation, a DCF. Now McKinsey through three of their consultants publish the sequel called Value. Let's hope this text will also become required reading. The perspective is turned on its head and the focus has shifted to how corporations should manage their business to build long term shareholder value, but also on how they should try to understand the unfathomable equity market and build mutually beneficial relations with the right investors.

The practice of corporate governance at larger institutions often try to balance the many viewpoints of different so called stakeholders, be that employees and their right to unionize, the society and corporate disclosures of pollution levels etc. Sometimes the governance slightly looses track of one stakeholder: the investors in the mutual fund itself, the future retirees of the pension fund etc. This book concern itself with the owner as a stakeholder. Don't get me wrong, corporate governance often covers shareholder rights at AGMs etc. Normally, however, it doesn't cover the more strategic and operational ownership issues that a corporate board faces.
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Value: The Four Cornerstones of Corporate Finance
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