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

659 Pages·2009·6.32 MB·English

by  Rawley Thomas

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The Valuation
Handbook
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The Valuation
Handbook
Valuation Techniques from
Today’s Top Practitioners
RAWLEY THOMAS
BENTON E. GUP
John Wiley & Sons, Inc.
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Copyright#2010byRawleyThomasandBentonE.Gup.Allrightsreserved.
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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
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ToJean,Andy,Lincoln,Jeremy,andCarol
—BentonE.Gup
ToCarolAnn,John,Alexis,Kim,andRobert
—RawleyThomas
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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
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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