The Valuation Handbook: Valuation Techniques from Today's Top Practitioners (Wiley Finance) PDF
Preview The Valuation Handbook: Valuation Techniques from Today's Top Practitioners (Wiley Finance)
E1FFIRS 09/03/2009 14:19:8 Page6 E1FFIRS 09/03/2009 14:19:8 Page1 The Valuation Handbook E1FFIRS 09/03/2009 14:19:8 Page2 Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia,andAsia,Wileyisgloballycommittedtodevelopingandmarket- ingprintandelectronicproductsandservicesforourcustomers’professio- nalandpersonalknowledgeandunderstanding. TheWileyFinanceseriescontainsbookswrittenspecificallyforfinance and investment professionals as well as sophisticated individual investors andtheirfinancialadvisors.Booktopicsrangefromportfoliomanagement to e-commerce, risk management, financial engineering, valuation, and financialinstrumentanalysis,aswellasmuchmore. For a list of available titles, please visit our Web site at www.Wiley Finance.com. E1FFIRS 09/03/2009 14:19:8 Page3 The Valuation Handbook Valuation Techniques from Today’s Top Practitioners RAWLEY THOMAS BENTON E. GUP John Wiley & Sons, Inc. E1FFIRS 09/03/2009 14:19:8 Page4 Copyright#2010byRawleyThomasandBentonE.Gup.Allrightsreserved. PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey. PublishedsimultaneouslyinCanada. Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmittedin anyformorbyanymeans,electronic,mechanical,photocopying,recording,scanning,or otherwise,exceptaspermittedunderSection107or108ofthe1976UnitedStatesCopyright Act,withouteitherthepriorwrittenpermissionofthePublisher,orauthorizationthrough paymentoftheappropriateper-copyfeetotheCopyrightClearanceCenter,Inc.,222 RosewoodDrive,Danvers,MA01923,(978)750-8400,fax(978)646-8600,oronthewebat www.copyright.com.RequeststothePublisherforpermissionshouldbeaddressedtothe PermissionsDepartment,JohnWiley&Sons,Inc.,111RiverStreet,Hoboken,NJ07030, (201)748-6011,fax(201)748-6008,oronlineathttp://www.wiley.com/go/permissions. LimitofLiability/DisclaimerofWarranty:Whilethepublisherandauthorhaveusedtheirbest effortsinpreparingthisbook,theymakenorepresentationsorwarrantieswithrespecttothe accuracyorcompletenessofthecontentsofthisbookandspecificallydisclaimanyimplied warrantiesofmerchantabilityorfitnessforaparticularpurpose.Nowarrantymaybecreated orextendedbysalesrepresentativesorwrittensalesmaterials.Theadviceandstrategies containedhereinmaynotbesuitableforyoursituation.Youshouldconsultwithaprofessional whereappropriate.Neitherthepublishernorauthorshallbeliableforanylossofprofitorany othercommercialdamages,includingbutnotlimitedtospecial,incidental,consequential,or otherdamages. Forgeneralinformationonourotherproductsandservicesorfortechnicalsupport,please contactourCustomerCareDepartmentwithintheUnitedStatesat(800)762-2974,outside theUnitedStatesat(317)572-3993orfax(317)572-4002. Wileyalsopublishesitsbooksinavarietyofelectronicformats.Somecontentthatappearsin printmaynotbeavailableinelectronicbooks.FormoreinformationaboutWileyproducts, visitourwebsiteatwww.wiley.com. LibraryofCongressCataloging-in-PublicationData: Thomas,Rawley,1946- Thevaluationhandbook:valuationtechniquesfromtoday’stoppractitioners/ RawleyThomas,BentonE.Gup. p. cm. – (Wileyfinance;480) Includesbibliographicalreferencesandindex. ISBN978-0-470-38579-1(hardback) 1. Corporations–Valuation. 2. Stocks–Prices. I. Gup,BentonE. II. Title. HG4028.V3.T482010 332.630221–dc22 2009028345 PrintedintheUnitedStatesofAmerica 10 9 8 7 6 5 4 3 2 1 E1FFIRS 09/03/2009 14:19:8 Page5 ToJean,Andy,Lincoln,Jeremy,andCarol —BentonE.Gup ToCarolAnn,John,Alexis,Kim,andRobert —RawleyThomas E1FFIRS 09/03/2009 14:19:8 Page6 E1FTOC 09/02/2009 16:16:48 Page7 Contents Preface xvii ValuationsAreImportant xvii ValuationChallenges:WhichTechniquestoApply xvii Contributors xix ChapterSummaries xx CHAPTER1 TwoFrameworksforUnderstandingValuationModels 1 BentonE.Gup Top-Down/Bottom-UpAnalysis 1 LifeCycle 6 Firms 9 Conclusion 10 Notes 10 CHAPTER2 TheValueEdge:ReaptheAdvantageofDisciplinedTechniques 11 WilliamJ.HassandShepherdG.PryorIV ValuationDecisionsAreMadeDifferentlybyDifferentPeople 12 TechniquesofCommunicatingValueCanDemonstratea CommitmenttoValueBuilding 15 AnalystsBeware:Once-SuccessfulPublicCompaniesCan LoseTheirWay 17 IncentiveCompensationTechniquesBasedonValueAreBetter 18 ValuationTechniquesforPrivateCompaniesAreAlso MoreDataDriven 26 EstimatesofValueMayDifferDependingonDataIntegrity 27 FinanceTheoryandCorporateValue 31 TheValueEdgeBeginsattheStrategicBusinessUnitLevel 33 TheWaterfallofValueIdentifiesValueCreatorsandDestroyers 34 BetterValuationFrameworksProvideDiscipline 35 TheValueJourneyHasManyStepsalongtheWay 37 vii E1FTOC 09/02/2009 16:16:48 Page8 viii CONTENTS Acknowledgments 40 References 40 CHAPTER3 ApplyingaSystemsMindsettoStockValuation 43 BartleyJ.Madden Choice1:ASystemsMindset 43 Choice2:Firms’CompetitiveLifeCycle 45 Choice3:InflationAdjustmentsandEconomicReturns 49 Choice4:DenominatorDependsontheNumerator 50 Choice5:InsightsandPlausibilityJudgments 56 BacktotheFuture 59 SearchingforFailuresandSuccesses 60 Conclusion 63 Notes 64 References 65 CHAPTER4 ComparingValuationModels 67 ThomasE.Copeland LiteratureReview 68 BriefDescriptionoftheValuationModelsThat AreCompared 69 AnExpertSystemThatDoesValuation 71 GoodnessofFit:InitialSample(1,395Valuations, 1993to2000) 77 TestsofDCFinaHoldoutSample(NewSample2000–2008) 80 ConvergenceTests 82 StrawManHorseRaces(ComparisonofThreeModels) 86 Convergence 89 Conclusion 91 Notes 107 References 107 CHAPTER5 DevelopinganAutomatedDiscountedCashFlowModel 108 RobertJ.AtraandRawleyThomas ModelsExamined 111 DataandInitialParameterization 114 MeasurementPrinciples 114
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