The Valuation Handbook : Valuation Techniques from Today's Top Practitioners

by Rawley Thomas; Benton E. Gup (The Univ. of Alabama)

• ISBN13: 9780470539958
• ISBN10: 047053995X
• Format: eBook
• Copyright: 2009-09-01
• Publisher: Wiley

Summary

The definitive guide to valuation written by a who's who of today's top practitionersThe 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. It concentrates on specific and innovative valuation techniques, rather than the theoretical approaches more generally accepted and discussed. Given the extreme volatility of the stock market, valuation is a critical issue for analysts, investors, and businesses. Here, various professional contributors explain how their firms approach the valuation process, while academic contributors share their valuation consulting and research experience. Examines how to value assets in today's dynamic market setting Offers a broad spectrum of ideas from some of the top practitioners and academics in this field Highlights state-of-the-art approaches to company valuationFilled with in-depth insights and expert advice, The Valuation Handbook puts this difficult discipline in perspective.

Table of Contents

Preface

Valuations Are Important

Valuation Challenges: Which Techniques to Apply

Contributors

Chapter Summaries

Two Frameworks for Understanding Valuation Models

Top-Down/Bottom-Up Analysis

Life Cycle

Firms

Conclusion

Notes

The Value Edge: Reap the Advantage of Disciplined Techniques

Valuation Decisions Are Made Differently by Different People

Techniques of Communicating Value Can Demonstrate a Commitment to Value Building

Analysts Beware: Once-Successful Public Companies Can Lose Their Way

Incentive Compensation Techniques Based on Value Are Better

Valuation Techniques for Private Companies Are Also More Data Driven

Estimates of Value May Differ Depending on Data Integrity

Finance Theory and Corporate Value

The Value Edge Begins at the Strategic Business Unit Level

The Waterfall of Value Identifies Value Creators and Destroyers

Better Valuation Frameworks Provide Discipline

The Value Journey Has Many Steps along the Way

Acknowledgments

References

Applying a Systems Mindset to Stock Valuation

Choice 1: A Systems Mindset

Choice 2: Firms' Competitive Life Cycle

Choice 3: Inflation Adjustments and Economic Returns

Choice 4: Denominator Depends on the Numerator

Choice 5: Insights and Plausibility Judgments

Back to the Future

Searching for Failures and Successes

Conclusion

Notes

References

Comparing Valuation Models

Literature Review

Brief Description of the Valuation Models That Are Compared

An Expert System That Does Valuation

Goodness of Fit: Initial Sample (1,395 Valuations, 1993 to 2000)

Tests of DCF in a Holdout Sample (New Sample 2000-2008)

Convergence Tests

Straw Man Horse Races (Comparison of Three Models)

Convergence

Conclusion

Notes

References

Developing an Automated Discounted Cash Flow Model

Models Examined

Data and Initial Parameterization

Measurement Principles

Proprietary Models

Conclusion

Appendix: Academic Literature

Notes

References

The Essence of Value-Based Finance

Introducing Value-Based Finance (a Transition from Accounting to Economics)

Valuation Perspectives: Economic Profit and Market Value Added

Valuation Perspectives: The Magnifier

Valuation Perspectives: Financial Drivers and Value Profit Margin

Value Analysis: The Proper Focus

Note

Residual Income and Stock Valuation Techniques: Does It Matter Which One You Use?

Economic Value Added (EVA)

Residual Income Method of Valuation

Abnormal Earnings Growth Model

Numerical Example of RI and AEG

Conclusion

Notes

References

Modern Tools for Valuation: Providing the Investment Community with Better Tools for Investment Decisions

Identifying the Problem

What Drives Stock Market Valuation?

Our Valuation Methodology-Providing a Solution

Theory Meets Practice

General Notes on Stock Picking

Definitions of Key Terms Used in Our Valuation Models

How Our Dynamic Discounted Cash Flow Model Works

Explanation of Risk/Reward Rating System

NOPAT, Invested Capital, and WACC Calculations for Accenture

Notes

The Economic Profit Approach to Securities Valuation

Basics of Economic Profit Valuation

Economic Profit Models

Reconciliation of EVA Models

Cost of Capital Effects

Pricing Implications

EVA Accounting Adjustments

Invested Capital

EVA Application: JLG Dow Fundamental

EVA Link to FCF Valuation

FCF Valuation: Horizon Years

FCF Valuation: Residual Years

Summary

Notes

Reference

Valuation for Managers: Closing the Gap between Theory and Practice

Current Environment

Alternative Measures of Value Creation: A Quick Review

Conclusions

Note

References

The LifeCycle Returns Valuation System

Converting Accounting Information to Economic Returns

Converting Economic Returns to Intrinsic Values

Converting Intrinsic Values to Investment Decisions

Summary

Appendix Market Derived Discount Rates and CAPM Beta Costs of Capital

Notes

References

Morningstar's Approach to Equity Analysis and Security Valuation

Applying Economic Moats to Security Valuation

Intrinsic Value

Conclusion

Valuing Real Options: Insights from Competitive Strategy

Overview of Option Pricing for Financial Securities

Basic Option Pricing Applications for Real Assets

Advanced Option Pricing Applications for Real Assets

Conclusion and Future Research

Note

References

GRAPES: A Theory of Stock Prices

A Theory of Stock Prices

Arbitrage

The Beginning of All Things

The Model and System

GRAPES System for Valuing Companies

The Pricing of Risk

Appendix: Examples of McDonald's and Wal-Mart

Notes

References

Portfolio Valuation: Challenges and Opportunities Using Automation

Background

Methods Adoption Implications

Accounting Pronouncements

SEC Guidance

Accounting Pronouncements and the FASB

XBRL Format

Emerging Best Practices

International Standards

Producing Portfolio Valuations

Using Automation in Valuations

Conclusion

Notes

References

The Valuation of Health Care Professional Practices

Basic Economic Valuation Tenets

The Value Pyramid

Buy or Build? Value as Incremental Benefit

Standard of Value and Premise of Value

Valuation Adjustments for Risk

Classification of Assets and Determination of Goodwill

Impact of Competitive Forces

Valuation Approaches, Methods, and Techniques

Analysis of Risk

Level of Value: Discounts and Premiums

Conclusion

Notes

Valuing Dental Practices

Normalization

Fixed Asset Appraisal

Ratio Analysis

Trend Analysis

USPAP Standards

Summary

Notes

References

Measures of Discount for Lack of Marketability and Liquidity

Publicly Traded Equivalent Value

Discounts for lack of Marketability and Discount for lack of Liquidity

Benchmarking Methods

Empirical Studies

Liquidity as a Pricing Factor

Distinction between Holding Period and Liquidation Period

Quantitative Approaches based on CAPM and Time Value

Historical Market Liquidity Statistics

Price Pressure and Market failure

Measuring Asset Liquidity

Application of Time/Volatility (Option) Models to Discount for Lack Of Liquidity

Three Option based Models

Black-Scholes put (BSP)

Average Price Asian Put (AAP)

Look Back Put (LBP)

Conclusions

References

An Economic View of the Impact of Human Capital on Firm Performance and Valuation

Creating and Standardizing Metrics

Predicting Future Financial Results

Organizational Decomposition

Mathematical Models Guiding Practical Action

Note

Reference

EBITDA: Down but Not Out

What Is EBITDA?

Who Uses EBITDA and Why?

EBITDA in Financial Reporting

EBITDA in Europe

Impact on the U.S. Capital Market

The Reporting Performance Project

Conclusions

Notes

References

Optimizing the Value of Investor Relations

Investor Relations as a Service Function

The Investment Relations Officer as the Resident Investment Market Expert

Building Investor Respect as Well

It's All about Information of Value

The Information Advantage

Working with One Key Investor at a Time

Working with the Primary Investors

What It Takes to Do the Job

Identifying the Information That Determines Intrinsic Value

Focus on the Value Drivers

Linking Intrinsic Value to Stock Price

Numerous Vital Lessons from This Book

Wrapping It Up

Note

References

Lower Risk and Higher Returns: Linking Stable Paretian Distributions and Discounted Cash Flow

Background

Intrinsic Values and Distributions

Automated Valuation Models

Research Design and Empirical Results

Conclusion

Synthesizing the Life Cycle Framework

Technical Note-Ranges of Bounded Rationality

Notes

References

Common Themes and Differences: Debates and Associated Issues Facing the Profession

Does Intrinsic Value Have Any Meaning?

Methodologies: Mark to Market, Mark to Model

Illiquidity Crises and Market Meltdowns: Effect on Quantitative Strategies

Discounted Cash Flow Methodologies

Financial Management Association Practitioner Demand Driven Academic Research Initiative Fma Pddari

Examples of Assumptions and Theories Deserving Debate and Empirical Quantification

References

About the Editors

About the Contributors

Index

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