Valuation: Measuring and Managing the Value of Companies, Fourth Edition (Hardcover)

~ McKinsey & Company Inc. (Author), (Author), Marc Goedhart (Author), David Wessels (Author) "The U.S. stock market's behavior from 1980 through today has confused and frustrated investors and managers..." (more)
Key Phrases: beer industry, market reaction, value driver formula, Home Depot, Journal of Finance, United States (more...)

Editorial Reviews

Product Description

Hailed by financial professionals worldwide as the single best guide of its kind, Valuation, Fourth Edition is thoroughly revised and expanded to reflect business conditions in today's volatile global economy. Valuation provides up-to-date insights and practical advice on how to create, manage, and measure an organization's value. Along with all-new case studies that illustrate how valuation techniques and principles are applied in real-world situations, this comprehensive guide has been updated to reflect the events of the Internet bubble and its effect on stock markets, new developments in academic finance, changes in accounting rules (both U. S. and IFRS), and an enhanced global perspective. This edition contains the solid framework that managers at all levels, investors, and students have come to trust.

From the Inside Flap

At the crossroads of corporate strategy and finance lies valuation. And in today's economy—whether you're a seasoned manager or a budding business professional—it's essential to excel at measuring, managing, and maximizing shareholder and company value. Valuation, hailed by financial professionals worldwide as the single best guide of its kind, will show you how to do just that and much more.

Thoroughly revised and expanded to reflect business conditions in today's volatile global economy, Valuation, Fourth Edition continues the tradition of its bestselling predecessors by providing up-to-date insights and practical advice on how to create, manage, and measure the value of an organization. Along with all-new case studies that illustrate how valuation techniques and principles are applied in real-world situations, this comprehensive guide has been updated to reflect the events of the Internet bubble and its effect on stock markets, new developments in academic finance, changes in accounting rules (both U. S. and IFRS), and an enhanced global perspective.

Valuation, Fourth Edition is filled with expert guidance that managers at all levels, investors, and students have come to trust. It contains a solid framework for valuation:

• Analyzing historical performance, including reorgan-izing a company's financial statements to reflect economic rather than accounting performance
• Forecasting performance, with emphasis on not just the mechanics of forecasting but also how to think about a company's future economics
• Estimating the cost of capital with practical tips that aren't found in textbooks
• Interpreting the results of a valuation in light of a company's competitive situation
• Linking a company's valuation multiples to the core drivers of its performance

Valuation, Fourth Edition remains true to its roots with an extensive discussion on the complexity of measuring corporate performance to assess historical financial results properly and to gain insight into a company's ability to create value in the future (its corporate "health"). A complementary chapter advises managers how to run companies to create long-term value, and a new chapter explores ways to improve communication with financial markets.

Valuation, Fourth Edition stands alone in this field with its reputation of quality and consistency. The author team of Tim Koller, Marc Goedhart, and David Wessels has taken the latest insights from their experiences working with global companies and created one of the most engaging and insightful guides to valuation. If you want to hone your valuation skills today and improve them for years to come, look no further than the Fourth Edition of Valuation.

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Product Details

• Hardcover: 768 pages
• Publisher: Wiley; 4 edition (June 8, 2005)
• Language: English
• ISBN-10: 0471702188
• ISBN-13: 978-0471702184
• Product Dimensions: 10 x 7.1 x 1.7 inches
• Shipping Weight: 3.2 pounds (View shipping rates and policies)
• Average Customer Review: 4.1 out of 5 stars  See all reviews (25 customer reviews)
• Amazon.com Sales Rank: #23,159 in Books (See Bestsellers in Books)

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Customer Reviews

Most Helpful Customer Reviews

100 of 103 people found the following review helpful:

4.0 out of 5 stars This is a review of only the CD - i.e., Excel model, March 27, 2006

By	guy on the west coast - See all my reviews

This review is from: Valuation: Measuring and Managing the Value of Companies (Wiley Finance) (CD-ROM)

Let me say that I like the McKinsey model and use it a lot to value certain companies. Overall, I found that the Results section of the model really helped me understand the detailed nuances of the McKinsey model, especially given that the book itself is sometimes vague.

I gave the CD product 4 stars, instead of 5 stars, because I felt that:

1) The PDF instructional manual on using the model is woefully inadequate.
2) There were a few serious errors in the model.
3) The model took the easy way out on a lot of difficult valuation items.

1. The PDF manual is woefully inadequate. Reading it, you think the model is self-explanatory, but it really isn't. You have to really study the numbers to understand what assumptions the model wants you to make. In this regard, the book is marginally helpful, the examples in the book is slightly more helpful. In many cases, I had to turn to other valuation texts to figure out a few things.

2. The model is for the most part, error-free. But I did catch two calculation errors that I will share, so that others can avoid the pain. First, in the Forecast Drivers tab, there is a data row called Capex. It looks back at the optional Capital Expenditure line as an off-balance sheet item in 'Historical Data.' This is inconsistent with the book's data driven approach and specification that CapEx = change in Net PPE + Depreciation. You may want to recorrect the Capex formula to specify this. Why the model asks us to manually specify the Capital Expenditures in Historical Data, I have no idea.

Another error I saw is in the Results tab. In the Ratios section, there is one called 'Enterprise value / EBITA'. If you look at the formula, it points to EBIT. You need to correct this by having it point to Reported EBITA.

3. I think the model takes the easy way out on a lot of the most difficult items. For example, the book advocates treatment of R&D as a capitalized asset, and yet the model excludes this entirely. The book advocates dealing with the market value of debt, but the model just incorporates the book value of debt. The model leaves as an entry item the value of the lease as a balance sheet item, when it you could easily just as well incorporate extensions to model this. This is the same for options, convertible debt, customer receivables, unutilized/discontinued assets, etc.

Basically, the book is aggressive in advocating a firm estimation of operational value, NOA value, and Debt/DE claims, but the model is much less ambitious.

This does not make the model useless. It's a great data-driven model. It just requires the user to build sophisticated extensions to deal with the most complicated parts. At the same time, this is no cheap model. They are probably making lots of money on it. I would have expected the folks at McKinsey to provide extensions to handle the most complicated aspects of valuation, in addition to the core items.

17 of 21 people found the following review helpful:

5.0 out of 5 stars Valuation (McKinsey - 4th Edition), October 25, 2005

By	Jon Bull (Boston, MA USA) - See all my reviews

This review is from: Valuation: Measuring and Managing the Value of Companies, Fourth Edition, University Edition (Paperback)

This book is awesome. It offers incredibly comprehensive and insightful methods for rearranging financial statements into key drivers of firm value. It also teaches you how to apply those drivers to create a forecast for the future. Individual chapters are dedicated to the more complex concepts. This is a great resource for an aspiring or practicing analyst.

14 of 19 people found the following review helpful:

5.0 out of 5 stars Valuation bible!, July 12, 2005

By	An investment book reader (St. Louis, MO) - See all my reviews

Have used the book for years and this may be the best update yet. The case studies alone are simply fascinating. The global nature make it invaluable for everyone in business anywhere. New discussions on return on capital and growth are must-read.