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The Valuation Handbook: Valuation Techniques from Today's Top Practitioners (Wiley Finance) PDF

659 Pages·2009·6.32 MB·English
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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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The definitive guide to valuation written by a who's who of today's top practitioners The Valuation Handbook differs significantly from other related books on this topic because the contributors are practitioners, academics, and investment firms that explain how they value companies and other assets
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