Valuation Measuring and Managing the Value of Companies 6th edition by McKinsey and Company, Tim Koller, Marc Goedhart, David Wessels ISBN‎ 111887370X ‎ 978-1118873700

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ISBN 10:‎ 111887370X
ISBN 13: ‎ 978-1118873700
Author: McKinsey and Company, Tim Koller, Marc Goedhart, David Wessels 

Valuation is the single best guide of its kind, helping financial professionals worldwide excel at measuring, managing, and maximizing shareholder and company value. This new sixth edition provides insights on the strategic advantages of value-based management, complete detailed instruction, and nuances managers should know about valuation and valuation techniques as applied to different industries, emerging markets, and other special situations.

Valuation lies at the crossroads of corporate strategy and finance. In today’s economy, it has become an essential role ― and one that requires excellence at all points. This guide shows you everything you need to know, and gives you the understanding you need to be effective.

• Estimate the value of business strategies to drive better decision making
• Understand which business units a corporate parent is best positioned to own
• Assess major transactions, including acquisitions, divestitures, and restructurings
• Design a capital structure that supports strategy and minimizes risk

As the valuation function becomes ever more central to long- and short-term strategy, analysts and managers need an authoritative reference to turn to for answers to challenging situations. Valuation stands ahead of the field for its reputation, quality, and prestige, putting the solutions you need right at your fingertips.

Valuation Measuring and Managing the Value of Companies 6th Table of contents:

Part One: Foundations of Value

1: Why Value Value?

What Does It Mean to Create Shareholder Value?

Can Stakeholder Interests Be Reconciled?

Shareholder Capitalism Cannot Solve All Social Issues

Consequences of Forgetting Value-Creation Principles

Short-Termism Runs Deep

This Book

Notes

2: Fundamental Principles of Value Creation

The Relationship of Growth, ROIC, and Cash Flow

Balancing ROIC and Growth to Create Value

Real-World Examples

Managerial Implications

Economic Profit Combines ROIC and Size

The Math of Value Creation

Summary

Notes

3: Conservation of Value and the Role of Risk

Conservation of Value

Risk and Value Creation

Summary

Notes

4: The Alchemy of Stock Market Performance

Why Shareholder Expectations Become a Treadmill

Real-World Effects of the Expectations Treadmill

Decomposing TRS

Understanding Expectations

Managerial Implications

Notes

5: The Stock Market Is Smarter Than You Think

Markets and Fundamentals: A Model

Markets and Fundamentals: The Evidence

What about Earnings?

Earnings Management

Diversification and the Conglomerate Discount

Size and Value

Market Mechanics Don’t Matter

Value Creation Is More Important than Value Distribution

Summary

Notes

6: Return on Invested Capital

What Drives ROIC?

Competitive Advantage

Sustainability of Return on Invested Capital

An Empirical Analysis of Returns on Invested Capital

Summary

Notes

7: Growth

Drivers of Revenue Growth

Growth and Value Creation

Why Sustaining Growth Is Hard

Empirical Analysis of Corporate Growth

Summary

Notes

Part Two: Core Valuation Techniques

8: Frameworks for Valuation

Enterprise Discounted Cash Flow Model

Economic-Profit-Based Valuation Models

Adjusted Present Value Model

Capital Cash Flow Model

Cash-Flow-to-Equity Valuation Model

Other Approaches to Discounted Cash Flow

Alternatives to Discounted Cash Flow

Summary

Notes

9: Reorganizing the Financial Statements

Reorganizing the Accounting Statements: Key Concepts

Reorganizing the Accounting Statements: In Practice

Advanced Issues

Notes

10: Analyzing Performance

Analyzing Returns on Invested Capital

Analyzing Revenue Growth

Credit Health and Capital Structure

General Considerations

Notes

11: Forecasting Performance

Determine the Forecast’s Length and Detail

Components of a Good Model

Mechanics of Forecasting

Additional Issues

Notes

12: Estimating Continuing Value

Recommended Formula for DCF Valuation

Continuing Value Using Economic Profit

Subtleties of Continuing Value

Common Pitfalls

Evaluating Other Approaches to Continuing Value

Advanced Formulas for Continuing Value

Closing Thoughts

Notes

13: Estimating the Cost of Capital

Weighted Average Cost of Capital

Estimating the Cost of Equity

Estimating the After-Tax Cost of Debt

Using Target Weights to Determine the Cost of Capital

Complex Capital Structures

Closing Thoughts

Notes

14: Moving from Enterprise Value to Value per Share

Valuing Nonoperating Assets

Valuing Debt and Debt Equivalents

Valuing Hybrid Securities and Noncontrolling Interests

Estimating Value per Share

Notes

15: Analyzing the Results

Validating the Model

Sensitivity Analysis

Creating Scenarios

The Art of Valuation

Notes

16: Using Multiples

Value Multibusiness Companies as a Sum of Their Parts

Use Forward Earnings Estimates

Use Net Enterprise Value Divided by Adjusted EBITA or NOPLAT

Adjust for Nonoperating Items

Use the Right Peer Group

Alternative Multiples

Summary

Notes

17: Valuation by Parts

Valuing by Parts: Mechanics and Insights

Building Business Unit Financial Statements

Cost of Capital

Testing the Value Based on Multiples of Peers

Summary

Notes

Part Three: Advanced Valuation Techniques

18: Taxes

Operating Taxes on the Reorganized Income Statement

Converting Operating Taxes to Operating Cash Taxes

Deferred Taxes on the Reorganized Balance Sheet

Valuing Deferred Taxes

Closing Thoughts

Notes

19: Nonoperating Items, Provisions, and Reserves

Nonoperating Expenses and One-Time Charges

Provisions and Their Corresponding Reserves

Closing Thoughts

Notes

20: Leases and Retirement Obligations

Operating Leases

Securitized Receivables

Pensions and Other Retirement Benefits

Closing Thoughts

Notes

21: Alternative Ways to Measure Return on Capital

Value-Based Returns on Capital: ROIC and CFROI

Capitalizing Expensed Investments

When Businesses Need Little or No Capital

Summary

Notes

22: Inflation

Inflation Leads to Lower Value Creation

Historical Analysis in Times of High Inflation

Financial Projections in Real and Nominal Terms

Summary

Notes

23: Cross-Border Valuation

Forecasting Cash Flows

Estimating the Cost of Capital

Incorporating Foreign-Currency Risk in the Valuation

Using Translated Foreign-Currency Financial Statements

Summary

Notes

24: Case Study: Heineken

Reorganizing Financial Statements

Analyzing Historical Performance

Forecasting Performance

Estimating Cost of Capital

Estimating Continuing Value

Calculating and Interpreting Results

Notes

Part Four: Managing for Value

25: Corporate Portfolio Strategy

What Makes an Owner the Best

The Best-Owner Life Cycle

Dynamic Portfolio Management

The Myth of Diversification

Constructing the Portfolio

Summary

Notes

26: Performance Management

Adopting a Granular Perspective

Choosing the Right Metrics

Organizational Support

Summary

Notes

27: Mergers and Acquisitions

Value Creation Framework

Empirical Results

Archetypes for Value-Creating Acquisitions

More Difficult Strategies for Creating Value from Acquisitions

Estimating Operating Improvements

How to Pay: In Cash or in Stock?

Focus on Value Creation, Not Accounting

Characteristics of Better Acquirers

Summary

Notes

28: Divestitures

Value Creation from Divestitures

Why Executives Shy Away from Divestitures

Assessing Potential Value from Divestitures

Deciding on Transaction Type

Summary

Notes

29: Capital Structure, Dividends, and Share Repurchases

A Practical Framework

Setting a Target Capital Structure

Deciding on Payout and Financing

Creating Value from Financial Engineering

A Comprehensive Case Example

Summary

Notes

30: Investor Communications

Objectives of Investor Communications

Intrinsic Value vs. Market Value

Which Investors Matter?

Communicating with Intrinsic Investors

Listening to Investors

Earnings Guidance

Meeting Consensus Earnings Forecasts

Summary

Notes

Part Five: Special Situations

31: Emerging Markets

Historical Analysis

Forecasting Cash Flows

Incorporating Country Risk in Scenario DCF Valuation

Estimating Cost of Capital in Emerging Markets

Calculating and Interpreting Results

Summary

Notes

32: Valuing High-Growth Companies

A Valuation Process for High-Growth Companies

Uncertainty Is Here to Stay

Summary

Notes

33: Cyclical Companies

Share Price Behavior

An Approach to Valuing Cyclical Companies

Implications for Managing Cyclical Companies

Summary

Notes

34: Banks

Economics of Banking

Principles of Bank Valuation

Complications in Bank Valuations

Summary

Notes

35: Flexibility

Uncertainty, Flexibility, and Value

Managing Flexibility

Methods for Valuing Flexibility

Four Steps to Valuing Flexibility

Real-Option Valuation and Decision Tree Analysis: A Numerical Example

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