Valuation: theories and concepts

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Valuation: Theories and Concepts provides an understanding on how to value companies that employ non-standard accounting procedures, particularly companies in emerging markets and those that require a wider variety of options than standard texts provide.
The book offers a broader, more holistic perspective that is perfectly suited to companies and worldwide markets. By emphasizing cases on valuation, including mergers and acquisition valuation, it responds to the growing expectation that students and professionals must generate comprehensive perspectives based on thorough investigations and a library of valuation theories.
Readers will gain a better understanding of the development of complete analyses, including trend analysis of financial parameters, ratio analysis, and differing perspectives on valuation and strategic initiatives. Case studies include stock market performance and synergies and the intrinsic value of the firm are compared with offer price. In addition, full data sets for each chapter are available online.

Valuation, 1st Edition

Part I: Theories and Concepts
1. Perspectives on value and valuation
Abstract
1.1 Introduction
1.2 Application of valuation
1.3 Approaches to valuation
1.4 Steps in value creation
1.5 Value drivers
1.6 Empirical evidence on value drivers
1.7 Strategic models of valuation
1.8 Stock price maximization
1.9 Linkage between strategic management and shareholder value
1.10 Challenges in valuing intangibles
1.11 Innovation and value creation
1.12 Review of research studies on usage of valuation methods
1.13 Challenges for valuation
1.14 Review on theories of valuation
1.15 Most valuable companies
Appendix: Financial statement analysis
Analysis of growth potential
Fundamentals of valuation
Bond valuation and interest rates
Basics of stock valuation
Summary highlights of stock valuation
References
2. Risk and return
Abstract
2.1 Introduction
2.2 Accounting and risk measures
2.3 Measures of returns
2.4 Risk premium
2.5 Models of risk and return
References
3. Efficient capital markets and its implications
Abstract
3.1 Introduction
3.2 Forms of efficient market hypothesis
3.3 Tests of EMH
3.4 Review of research studies on market efficiency
3.5 Anomalies of EMH
3.6 Implications of EMH
3.7 Behavioral finance
References
4. Estimation of cost of capital
Abstract
4.1 Introduction
References
5. Principles of cash flow estimation
Abstract
5.1 Introduction
5.2 Adjustments to financial statements
5.3 Adjustments of expensed investments
5.4 Reflections on managed earnings
5.5 Estimating reinvestment needs for valuation
5.6 Forecasting growth
References
6. Discounted cash flow valuation models
Abstract
6.1 Introduction
6.2 Dividend discount model
6.3 FCF valuation models
6.4 Adjusted present value method
6.5 Value of nonoperating assets
6.6 Estimation of total value of firm
6.7 Theoretical perspectives on free cash flow valuation
6.8 Research studies on FCF models
6.9 Estimation of value of Hyundai Motors through FCFE and FCFF valuation models
6.10 Estimation of value of Sasol through the two-stage FCFF model
References
7. Relative valuation
Abstract
7.1 Introduction
7.2 Advantages and disadvantages of relative valuation
7.3 Drivers of relative valuation
7.4 Steps in relative valuation
7.5 Relative valuation techniques
7.6 Industry-specific multiples
7.7 Research studies on relative valuation
7.8 Principles of relative valuation
7.9 Cases of relative valuation
References
8. Mergers and acquisition valuation
Abstract
8.1 Introduction
8.2 Types of mergers and acquisitions
8.3 Synergies in mergers
8.4 Drivers of value creation in different types of M&A
8.5 Empirical evidence on value creation in M&A
8.6 M&A valuation
8.7 Valuation of M&A synergies
8.8 Payment to target firms
8.9 Bootstrapping
8.10 Empirical studies involving methods of payment
8.11 Empirical studies on performance of merged companies
8.12 Principles of evaluation of bids
8.13 Illustration of financial variables in merger analysis
References
9. Real options valuation
Abstract
9.1 Introduction
9.2 Real options as strategic investments
9.3 Limitations of discounted cash flow methods
9.4 Different types of real options
9.5 Solution approach to option valuation
9.6 Real options in different industry sectors
9.7 Factors affecting the value of real growth options
9.8 Real options in mergers and acquisitions
9.9 Empirical studies on real options
9.10 Real option valuation using decision tree approach
9.11 Real option valuation using Black Scholes model
References
10. Valuation of different industry sectors
Abstract
10.1 Valuation of internet companies
10.2 Valuation of financial institutions
10.3 Valuation of biotechnology companies
10.4 Valuation of real estate and construction sectors
10.5 Valuation of oil companies
References
11. Valuation issues
Abstract
11.1 Valuation of closely held or private companies
11.2 Valuing firms with negative earnings
11.3 Valuing cyclical firms
11.4 Valuing startup firms
11.5 Valuing multibusiness firms
11.6 Valuation in emerging markets
11.7 Valuing high growth companies
11.8 Errors in valuation
References
Part II: Case Studies on Valuation
12. Valuation of Walmart
Abstract
12.1 Financial highlights
12.2 Equity value creation
12.3 Ratio analysis
12.4 Standardized income statements of Walmart
12.5 Valuation of Walmart
12.6 Discounted cash flow valuation
12.7 Two stage FCFE model
12.8 Relative valuation
References
13. Valuation of Tata Motors
Abstract
13.1 Global industry trends
13.2 Business overview
13.3 Competitor analysis
13.4 Financial performance analysis
13.5 Wealth creation in stock market
13.6 Ratio analysis
13.7 Estimation of cost of equity and WACC
13.8 Valuation of Tata Motors
13.9 Valuation using dividend discount models
13.10 FCFE valuation
13.11 Stable stage or constant growth model
13.12 Valuation using FCFF model
13.13 Relative valuation (Tables 13.16–13.18)
References
14. Valuation of Samsung Electronics
Abstract
14.1 Strategies for growth
14.2 Growth trend analysis
14.3 Ratio analysis (Tables 14.6–14.12)
14.4 Stock market wealth creation (Tables 14.13 and 14.14)
14.5 Discounted cash flow valuation
14.6 Estimation of cost of equity and cost of capital
14.7 Dividend discount model
14.8 Constant growth DDM
14.9 FCFE valuation
14.10 Estimation of adjusted net capital expenditure (Table 14.19)
14.11 Estimation of noncash working capital in millions of krw
14.12 Estimation of two stage FCFE valuation
14.13 Constant growth FCFE model
14.14 Zero growth FCFE model
14.15 FCFF valuation model (Tables 14.24 and 14.25)
14.16 Two stage FCFF valuation model
14.17 Stable phase inputs
14.18 FCFF one stage growth model
14.19 FCFF zero growth model
14.20 Relative valuation
15. Valuation of Industrial and Commercial Bank of China (ICBC)
Abstract
15.1 Business segments
15.2 Strategy
15.3 Growth analysis (Tables 15.2–15.13)
15.4 Stock market wealth creation (Tables 15.14–15.16)
15.5 Valuation of ICBC
15.6 DDM
15.7 Relative valuation (Tables 15.18–15.26)
References
16. Valuation of Gazprom
Abstract
16.1 Growth rate analysis (Table 16.4)
16.2 Ratio analysis (Tables 16.5–16.9)
16.3 Stock wealth creation (Tables 16.10 and 16.11)
16.4 Estimation of cost of capital
16.5 WACC estimation
16.6 Valuation using discounted cash flow valuation
16.7 FCFE valuation
16.8 Relative valuation
References
17. Valuation of Singapore airlines
Abstract
17.1 Growth rate analysis (Tables 17.10–17.12)
17.2 Ratio analysis (Tables 17.13–17.16)
17.3 Stock wealth creation
17.4 Excess value added (Table 17.18)
17.5 Estimation of cost of capital
17.6 Valuation models
17.7 Stable stage dividend discount model
17.8 Stable stage FCFE and FCFF models
17.9 Estimation of FCFE in year 2014
17.10 Estimation of FCFF
17.11 Relative valuation (Tables 17.19 and 17.20)
17.12 Enterprise value multiples
Reference
18. Wells Fargo
Abstract
18.1 Current financial highlights
18.2 Financial highlights
18.3 Growth analysis (Tables 18.4 and 18.5)
18.4 Stock wealth creation
18.5 Dividend discount model
18.6 Estimation of growth rate from fundamentals (Table 18.11)
18.7 Relative valuation (Tables 18.13–18.15)
References
19. Valuation of China life insurance
Abstract
19.1 Financial highlights
19.2 Solvency ratio
19.3 Gross written premium
19.4 Analysis of cash flows
19.5 Estimation of embedded value
19.6 Stock return analysis
19.7 Estimation of cost of equity
19.8 Discounted cash flow model
19.9 Relative valuation
References
20. Valuation of Franklin resources
Abstract
20.1 Types of SIPs
20.2 Types of investment management and related services
20.3 Investment products
20.4 Stock wealth creation
20.5 Estimation of cost of equity
20.6 Valuation
20.7 Stable phase inputs
20.8 Relative valuation
References
21. Valuation of Pfizer
Abstract
21.1 Growth perspective of Pfizer
21.2 Performance analysis
21.3 Stock wealth creation
21.4 Estimation of cost of equity and WACC
21.5 Valuation models
21.6 Relative valuation
Reference
Part III: Case Studies on Mergers and Acquisition Valuation
22. Google’s acquisition of Motorola—a valuation perspective
Abstract
22.1 Introduction
22.2 Merger highlights
22.3 Strategic reasons for the acquisition
22.4 Financial breakdown of Motorola deal
22.5 Valuation perspectives
22.6 Returns analysis for different time windows of acquisition announcement
22.7 Cumulative abnormal return analysis
22.8 Valuation—operating performance analysis
22.9 Two-stage valuation model for Motorola Mobility (Figure 22.10, Table 22.5)
22.10 Zero growth or perpetuity model valuation for Motorola
22.11 Relative valuation for Google Inc.
22.12 Cash flow to market value model
Appendix 1: Cumulative returns for Google Inc.
Appendix 2: Cumulative returns for Motorola Mobility Holdings
Appendix 3: Cumulative abnormal returns (CAR) for Google Inc.
Appendix 4: Cumulative abnormal returns (CAR) for Motorola Mobility Holdings
References
23. HP Compaq merger—valuation
Abstract
23.1 Industry overview
23.2 Company highlights
23.3 Merger highlights
23.4 Expected synergies
23.5 Impact of merger announcement on wealth creation
Reference
24. Tata’s acquisition of Corus—a valuation analysis
Abstract
24.1 Highlights of Corus
24.2 Highlights of Tata Steel
24.3 The bidding war
24.4 Market reaction during the acquisition process
24.5 Strategic reasons for the acquisition
24.6 Valuation perspective
References
Glossary

Key Features: Provides an understanding on how to value companies that employ non-standard accounting procedures, particularly companies in emerging markets
Gives readers the ability to compare the intrinsic value of the firm with the offer price
Showcases a variety of valuation techniques and provides details about handling each part of the valuation process
Each case has data in excel spreadsheets for all companies, and data sets for each chapter are available online

Finance professionals and students in upper-division undergraduate and graduate level courses worldwide on valuation.