Valuation Techniques

624 Pages·2014·3.75 MB·English

VALUATION
TECHNIQUES
ffirs 12September2012;17:36:29
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ffirs 12September2012;17:36:29
VALUATION
TECHNIQUES
Discounted Cash Flow, Earnings Quality,
Measures of Value Added, and Real Options
David T. Larrabee, CFA
Jason A. Voss, CFA
John Wiley & Sons, Inc.
ffirs 12September2012;17:36:29
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Larrabee,DavidT.
Valuationtechniques:discountedcashflow,earningsquality,measuresofvalueadded,and
realoptions/DavidT.LarrabeeandJasonA.Voss.
p. cm.—(CFAInstituteinvestmentperspectivesseries)
Includesindex.
ISBN978-1-118-39743-5(cloth);ISBN978-1-118-41760-7(ebk);
ISBN978-1-118-42179-6(ebk);ISBN978-1-118-45017-8(ebk)
1. Corporations—Valuation. 2. Investmentanalysis. I. Voss,JasonApollo. II. Title.
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ffirs 12September2012;17:36:29
CONTENTS
Foreword ix
Introduction 1
PART I: VALUATION PERSPECTIVES:
THEN AND NOW 3
CHAPTER 1
Two Illustrative Approaches to Formula Valuations
of Common Stocks 5
Benjamin Graham
Reprinted from the Financial Analysts Journal (November 1957):11(cid:2)15.
CHAPTER 2
Seeking a Margin of Safety and Valuation 17
Matthew B. McLennan, CFA
Reprinted from CFA Institute Conference Proceedings Quarterly (June 2011):
27(cid:2)34.
PART II: VALUATION METHODOLOGIES 29
CHAPTER 3
Company Performance and Measures of Value Added 31
Pamela P. Peterson, CFA, and David R. Peterson
Reprinted from the Research Foundation of CFA Institute (December 1996).
CHAPTER 4
The Affordable Dividend Approach to Equity Valuation 93
Alfred Rappaport
Reprinted from the Financial Analysts Journal (July/August 1986):52(cid:2)58.
CHAPTER 5
Discounted-Cash-Flow Approach to Valuation 105
Gregory A. Gilbert, CFA
Reprinted from ICFA Continuing Education Series (1990):23(cid:2)30.
v
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vi Contents
CHAPTER 6
Equity Securities Analysis Case Study: Merck & Company 115
Randall S. Billingsley, CFA
Reprinted from AIMR Conference Proceedings: Equity Securities Analysis
and Evaluation (December 1993):63(cid:2)95.
CHAPTER 7
Traditional Equity Valuation Methods 155
Thomas A. Martin, Jr., CFA
Reprinted from AIMR Conference Proceedings (May 1998):21(cid:2)35.
CHAPTER 8
A Simple Valuation Model and Growth Expectations 177
Morris G. Danielson
Reprinted from the Financial Analysts Journal (May/June 1998):50(cid:2)57.
CHAPTER 9
Franchise Valuation under Q-Type Competition 189
Martin L. Leibowitz
Reprinted from the Financial Analysts Journal (November/December 1998):
62(cid:2)74.
CHAPTER 10
Value Enhancement and Cash-Driven Valuation Models 209
Aswath Damodaran
Reprinted from AIMR Conference Proceedings: Practical Issues in Equity Analysis
(February 2000):4(cid:2)17.
CHAPTER 11
FEVA: A Financial and Economic Approach to Valuation 229
Xavier Adsera` and Pere Vin˜olas
Reprinted from the Financial Analysts Journal (March/April 2003):80(cid:2)87.
CHAPTER 12
Choosing the Right Valuation Approach 243
Charles M.C. Lee
Reprinted from AIMR Conference Proceedings: Equity Valuation in a Global
Context (April 2003):4(cid:2)14.
CHAPTER 13
Choosing the Right Valuation Approach 259
Robert Parrino, CFA
Reprinted from CFA Institute Conference Proceedings: Analyzing, Researching,
and Valuing Equity Investments (June 2005):15(cid:2)28.
CHAPTER 14
Valuing Illiquid Common Stock 279
Edward A. Dyl and George J. Jiang
Reprinted from the Financial Analysts Journal (July/August 2008):40(cid:2)47.
ftoc 12September2012;13:6:21
Contents vii
PART III: EARNINGS AND
CASH FLOW ANALYSIS 291
CHAPTER 15
Earnings: Measurement, Disclosure, and the Impact
on Equity Valuation 293
D. Eric Hirst and Patrick E. Hopkins
Reprinted from the Research Foundation of CFA Institute (August 2000).
CHAPTER 16
Cash Flow Analysis and Equity Valuation 349
James A. Ohlson
Reprinted from AIMR Conference Proceedings: Equity Research and Valuation
Techniques (May 1998):36(cid:2)43.
CHAPTER 17
Accounting Valuation: Is Earnings Quality an Issue? 361
Bradford Cornell and Wayne R. Landsman
Reprinted from the Financial Analysts Journal (November/December 2003):
20(cid:2)28.
CHAPTER 18
Earnings Quality Analysis and Equity Valuation 375
Richard G. Sloan
Reprinted from CFA Institute Conference Proceedings Quarterly (September 2006):
52(cid:2)60.
CHAPTER 19
Is Cash Flow King in Valuations? 389
Jing Liu, Doron Nissim, and Jacob Thomas
Reprinted from the Financial Analysts Journal (March/April 2007):56(cid:2)68.
PART IV: OPTION VALUATION 407
CHAPTER 20
Employee Stock Options and Equity Valuation 409
Mark Lang
Reprinted from the Research Foundation of CFA Institute (July 2004).
CHAPTER 21
Employee Stock Option Valuation with an Early
Exercise Boundary 465
Neil Brisley and Chris K. Anderson
Reprinted from the Financial Analysts Journal (September/October 2008):
88(cid:2)100.
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viii Contents
PART V: REAL OPTIONS VALUATION 483
CHAPTER 22
Real Options and Investment Valuation 485
Don M. Chance, CFA, and Pamela P. Peterson, CFA
Reprinted from the Research Foundation of CFA Institute (July 2002).
CHAPTER 23
Real-Options Valuation for a Biotechnology Company 573
David Kellogg and John M. Charnes
Reprinted from the Financial Analysts Journal (May/June 2000):76(cid:2)84.
About the Contributors 587
Index 589
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