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• Investment Valuation
• Contents
• CHAPTER 1 Introduction to Valuation
• A Philosophical Basis for Valuation
• Generalities about Valuation
• The Role of Valuation
• Conclusion
• Questions and Short Problems
• CHAPTER 2 Approaches to Valuation
• Discounted Cash Flow Valuation
• Relative Valuation
• Contingent Claim Valuation
• Conclusion
• Questions and Short Problems
• CHAPTER 3 Understanding Financial Statements
• The Basic Accounting Statements
• Asset Measurement and Valuation
• Measuring Financing Mix
• Measuring Earnings and Profitability
• Measuring Risk
• Other Issues in Analyzing Financial Statements
• Conclusion
• Questions and Short Problems
• CHAPTER 4 The Basics of Risk
• What is Risk?
• Equity Risk and Expected Return
• Alternative Models for Equity Risk
• A Comparative Analysis of Equity Risk Models
• Models of Default Risk
• Conclusion
• Questions and Short Problems
• CHAPTER 5 Option Pricing Theory and Models
• Basics of Option Pricing
• Determinants of Option Value
• Option Pricing Models
• Extensions of Option Pricing
• Conclusion
• Questions and Short Problems
• CHAPTER 6 Market Efficiency—Definition, Tests, and Evidence
• Market Efficiency and Investment Valuation
• What Is an Efficient Market?
• Implications of Market Efficiency
• Necessary Conditions for Market Efficiency
• Propositions about Market Efficiency
• Testing Market Efficiency
• Cardinal Sins in Testing Market Efficiency
• Some Lesser Sins That Can Be a Problem
• Evidence on Market Efficiency
• Time Series Properties of Price Changes
• Market Reaction to Information Events
• Market Anomalies
• Evidence on Insiders and Investment Professionals
• Conclusion
• Questions and Short Problems
• CHAPTER 7 Riskless Rates and Risk Premiums
• The Risk-Free Rate
• Equity Risk Premium
• Default Spreads on Bonds
• Conclusion
• Questions and Short Problems
• CHAPTER 8 Estimating Risk Parameters and Costs of Financing
• The Cost of Equity and Capital
• Cost of Equity
• From Cost of Equity to Cost of Capital
• Best Practices at Firms
• Conclusion
• Questions and Short Problems
• CHAPTER 9 Measuring Earnings
• Accounting versus Financial Balance Sheets
• Adjusting Earnings
• Conclusion
• Questions and Short Problems
• CHAPTER 10 From Earnings to Cash Flows
• The Tax Effect
• Reinvestment Needs
• Conclusion
• Questions and Short Problems
• CHAPTER 11 Estimating Growth
• The Importance of Growth
• Historical Growth
• Analyst Estimates of Growth
• Fundamental Determinants of Growth
• Qualitative Aspects of Growth
• Conclusion
• Questions and Short Problems
• CHAPTER 12 Closure in Valuation: Estimating Terminal Value
• Closure in Valuation
• The Survival Issue
• Closing Thoughts on Terminal Value
• Conclusion
• Questions and Short Problems
• CHAPTER 13 Dividend Discount Models
• The General Model
• Versions of the Model
• Issues in Using the Dividend Discount Model
• Tests of the Dividend Discount Model
• Conclusion
• Questions and Short Problems
• CHAPTER 14 Free Cash Flow to Equity Discount Models
• Measuring What Firms Can Return to Their Stockholders
• FCFE Valuation Models
• FCFE Valuation versus Dividend Discount Model Valuation
• Conclusion
• Questions and Short Problems
• CHAPTER 15 Firm Valuation: Cost of Capital and Adjusted Present Value Approaches
• Free Cash flow to the Firm
• Firm Valuation: The Cost of Capital Approach
• Firm Valuation: The Adjusted Present Value Approach
• Effect of Leverage on Firm Value
• Adjusted Present Value and Financial Leverage
• Conclusion
• Questions and Short Problems
• CHAPTER 16 Estimating Equity Value per Share
• Value of Nonoperating Assets
• Firm Value and Equity Value
• Management and Employee Options
• Value per Share When Voting Rights Vary
• Conclusion
• Questions and Short Problems
• CHAPTER 17 Fundamental Principles of Relative Valuation
• Use of Relative Valuation
• Standardized Values and Multiples
• Four Basic Steps to Using Multiples
• Reconciling Relative and Discounted Cash Flow Valuations
• Conclusion
• Questions and Short Problems
• CHAPTER 18 Earnings Multiples
• Price-Earnings Ratio
• The PEG Ratio
• Other Variants on the PE Ratio
• Enterprise Value to EBITDA Multiple
• Conclusion
• Questions and Short Problems
• CHAPTER 19 Book Value Multiples
• Price-to-Book Equity
• Applications of Price–Book Value Ratios
• Use in Investment Strategies
• Value-to-Book Ratios
• Tobin’s Q: Market Value/Replacement Cost
• Conclusion
• Questions and Short Problems
• CHAPTER 20 Revenue Multiples and Sector-Specific Multiples
• Revenue Multiples
• Sector-Specific Multiples
• Conclusion
• Questions and Short Problems
• CHAPTER 21 Valuing Financial Service Firms
• Categories of Financial Service Firms
• What is Unique about Financial Service Firms?
• General Framework for Valuation
• Discounted Cash Flow Valuation
• Asset-Based Valuation
• Relative Valuation
• Issues in Valuing Financial Service Firms
• Conclusion
• Questions and Short Problems
• CHAPTER 22 Valuing Firms with Negative or Abnormal Earnings
• Negative Earnings: Consequences and Causes
• Valuing Negative Earnings Firms
• Conclusion
• Questions and Short Problems
• CHAPTER 23 Valuing Young or Start-Up Firms
• Information Constraints
• New Paradigms or Old Principles: A Life Cycle Perspective
• Venture Capital Valuation
• General Framework for Analysis
• Value Drivers
• Estimation Noise
• Implications for Investors
• Implications for Managers
• The Expectations Game
• Conclusion
• Questions and Short Problems
• CHAPTER 24 Valuing Private Firms
• What Makes Private Firms Different?
• Estimating Valuation Inputs at Private Firms
• Valuation Motives and Value Estimates
• Valuing Venture Capital and Private Equity Stakes
• Relative Valuation of Private Businesses
• Conclusion
• Questions and Short Problems
• CHAPTER 25 Aquisitions and Takeovers
• Background on Acquisitions
• Empirical Evidence on the Value Effects of Takeovers
• Steps in an Acquisition
• Takeover Valuation: Biases and Common Errors
• Structuring the Acquisition
• Analyzing Management and Leveraged Buyouts
• Conclusion
• Questions and Short Problems
• CHAPTER 26 Valuing Real Estate
• Real versus Financial Assets
• Discounted Cash Flow Valuation
• Comparable/Relative Valuation
• Valuing Real Estate Businesses
• Conclusion
• Questions and Short Problems
• CHAPTER 27 Valuing Other Assets
• Cash-Flow-Producing Assets
• Non-Cash-Flow-Producing Assets
• Assets with Option Characteristics
• Conclusion
• Questions and Short Problems
• CHAPTER 28 The Option to Delay and Valuation Implications
• The Option to Delay a Project
• Valuing a Patent
• Natural Resource Options
• Other Applications
• Conclusion
• Questions and Short Problems
• CHAPTER 29 The Options to Expand and to Abandon: Valuation Implications
• The Option to Expand
• When Are Expansion Options Valuable?
• Valuing a Firm with the Option to Expand
• Value of Financial Flexibility
• The Option to Abandon
• Reconciling Net Present Value and Real Option Valuations
• Conclusion
• Questions and Short Problems
• CHAPTER 30 Valuing Equity in Distressed Firms
• Equity in Highly Levered Distressed Firms
• Implications of Viewing Equity as an Option
• Estimating the Value of Equity as an Option
• Consequences for Decision Making
• Conclusion
• Questions and Short Problems
• CHAPTER 31 Value Enhancement: A Discounted Cash Flow Valuation Framework
• Value-Creating and Value-Neutral Actions
• Ways of Increasing Value
• Value Enhancement Chain
• Closing Thoughts on Value Enhancement
• Conclusion
• Questions and Short Problems
• CHAPTER 32 Value Enhancement: Economic Value Added, Cash Flow Return on Investment, and Other Tools
• Economic Value Added
• Cash Flow Return on Investment
• A Postscript on Value Enhancement
• Conclusion
• Questions and Short Problems
• CHAPTER 33 Probabilistic Approaches in Valuation: Scenario Analysis, Decision Trees, and Simulations
• Scenario Analysis
• Decision Trees
• Simulations
• An Overall Assessment of Probabilistic Risk-Assessment Approaches
• Conclusion
• Questions and Short Problems
• CHAPTER 34 Overview and Conclusion
• Choices in Valuation Models
• Which Approach Should You Use?
• Choosing the Right Discounted Cash Flow Model
• Choosing the Right Relative Valuation Model
• When Should You Use the Option Pricing Models?
• Conclusion
• References
• Index