Synopses & Reviews
Valuation is the cornerstone of investment analysis, and a thorough understanding and correct application of valuation methodologies are critical for long-term investing success. Properly applied, valuation techniques can help investors distinguish between price and value, a critical distinction from which excess returns flow. Edited by two leading valuation experts from CFA Institute, this book brings together the insights and expertise of some of the most astute and successful investment minds of the past 50 years. From Benjamin Graham, the "father of value investing," to Aswath Damodaran, you'll learn what these investment luminaries have to say about investment valuation techniques, including earnings and cash flow analysis. As you read the chapters in this book, you will gain an appreciation for the evolution of valuation thought, and in the process, you will acquire a framework for understanding future innovations in the field.
- Features the best thinking on valuation from the industry's masters on the topic, supplemented with dozens of fascinating and instructive real-world examples
- Provides a breadth of perspectives on valuation theory and applications to ensure that it becomes a tool that matches every fundamental investor's way of looking at the world
- Comprehensively discusses special valuation situations, such as real options, employee stock options, highly leveraged firms, corporate takeovers, and more
- Supplies you with the tools you need to successfully navigate and thrive in the ever-changing financial markets
- Is being produced with the full support and input of CFA Institute, the world's leading association of investment professionals
Synopsis
Edited by two of CFA Institute's leading valuation experts, Investment Valuation: Methodologies, Earnings and Cash Flow Analysis, and Real Option Valuation offers a well rounded in depth look and approach to investment valuations, bridging together the expertise of over twenty three of the most prolific, astute and successful minds of our time. Investment Valuation begins with a historical perspective from Benjamin Graham, to methodologies from Alfred Rappaport and Aswath Damodaran , D. Eric Hirst and Patrick E Hopkins provides insight in earning and cash flow analysis, and Mark Lang and Don M. Chance concludes with options valuation and real options valuation. With over eighteen years of time tested and true practices, insights, policies, history and real world examples, Investment Valuation provides expert instruction on the methodologies, analysis, and sustaining success, handing you the tools needed to navigate through and thrive within this ever changing financial market.
Synopsis
Edited by two of CFA Institute's leading valuation experts, Investment Valuation: Methodologies, Earnings and Cash Flow Analysis, and Real Option Valuation offers a well rounded in depth look and approach to investment valuations, bridging together the expertise of over twenty three of the most prolific, astute and successful minds of our time. Investment Valuation begins with a historical perspective from Benjamin Graham, to methodologies from Alfred Rappaport and Aswath Damodaran , D. Eric Hirst and Patrick E Hopkins provides insight in earning and cash flow analysis, and Mark Lang and Don M. Chance concludes with options valuation and real options valuation. With over eighteen years of time tested and true practices, insights, policies, history and real world examples, Investment Valuation provides expert instruction on the methodologies, analysis, and sustaining success, handing you the tools needed to navigate through and thrive within this ever changing financial market.
Synopsis
Analysis and insights from the top thought leaders on one of the most critical topics in investing and asset managementValuation is one of the most important topics in finance, and its impact on the quality of both large and small investment portfolios, company balance sheets, and even cash flow, cannot be underestimated. Edited by two of the prestigious CFA Institute's leading valuation experts, this book brings together the insights and expertise of more than twenty three of the most astute and successful investment minds of the past fifty years. From Benjamin Graham, the "Father of Value Investing," to Alan Rappaport, Robert Parrino, Answorth Damodaran, D. Eric Hirst, Patrick E. Hopkins, Mark Lang, Don M. Chance, you'll hear what these investment luminaries have had to say about everything from earning and cash flow analysis to real options valuation.
- Features the best thinking on valuation from the leading minds on the topic, supplemented with dozens of fascinating and instructive real-world examples
- Schools you in proven valuation methodologies and analysis and tried-and-true investment strategies
- Supplies you with the tools you need to successfully navigate and thrive in the ever-changing financial markets
- Produced with the full support and input of the CFA Institute, the world's leading association of investment professionals
Synopsis
Praise for
Valuation Techniques"This compilation includes the classics of valuation from leading theoreticians and practitioners. It covers the evolving thought processes of several decades and brings into focus the questions faced and answered by different generations of investors. The readings, which were written by notables ranging from Benjamin Graham to some of today's thought leaders, can help prepare current investors for future challenges and opportunities."
Abby Joseph Cohen, CFA Goldman Sachs former chair, CFA Institute
"This anthology of papers on cash flow, dividend, and options-based valuation techniques is a useful reference tool, both as a historical perspective and for sourcing state-of-the-art practice. Academicians and practitioners alike will find the research articles, case studies, and examples thought-provoking and highly valuable."
Scott D. Stewart, PhD, CFA, Member of the Board of Directors Boston Security Analysts Society
Synopsis
Analysis and insights from top thought leaders on a pivotal topic in investing and asset managementValuation is the cornerstone for investment analysis, and a thorough understanding and correct application of valuation methodologies are critical for long-term investing success. Edited by two leading valuation experts from CFA Institute, this book brings together the insights and expertise of some of the most astute and successful investment minds of the past 50 years. From Benjamin Graham, the “father of value investing,” to Aswath Damodaran, you’ll learn what these investment luminaries have to say about investment valuation techniques, including earnings and cash flow analysis.
- Features the best thinking on valuation from the industry’s masters on the topic, supplemented with dozens of fascinating and instructive real-world examples
- Comprehensively discusses special valuation situations, such as real options, employee stock options, highly leveraged firms, corporate takeovers, and more
- Supplies you with the tools you need to successfully navigate and thrive in the ever-changing financial markets
- Is being produced with the full support and input of CFA Institute, the world’s leading association of investment professionals
About the Author
DAVID T. LARRABEE, CFA, is director of member and corporate products at CFA Institute, where he also serves as a content director in the areas of portfolio management and equity investments. Prior to joining CFA Institute, Mr. Larrabee spent two decades in the asset management industry as a portfolio manager and analyst. He earned a BA in economics from Colgate University and an MBA in finance from Fordham University.
JASON A. VOSS, CFA, is a content director at CFA Institute, where he focuses on fixed income, behavioral finance, and corporate finance. He is the author of The Intuitive Investor, and he also authored the What My Intuition Tells Me Now investment blog. Previously, he was a portfolio manager at Davis Selected Advisers, L.P., where he built an impressive track record co-managing the Davis Appreciation and Income Fund. Mr. Voss earned a BA in economics and an MBA in finance and accounting from the University of Colorado.
Table of 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):1115.
CHAPTER 2 Seeking a Margin of Safety and Valuation 17
Matthew B. McLennan, CFA
Reprinted from CFA Institute Conference Proceedings Quarterly (June 2011): 2734.
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):5258.
CHAPTER 5 Discounted-Cash-Flow Approach to Valuation 105
Gregory A. Gilbert, CFA
Reprinted from ICFA Continuing Education Series (1990):2330.
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):6395.
CHAPTER 7 Traditional Equity Valuation Methods 155
Thomas A. Martin, Jr., CFA
Reprinted from AIMR Conference Proceedings (May 1998):2135.
CHAPTER 8 A Simple Valuation Model and Growth Expectations 177
Morris G. Danielson
Reprinted from the Financial Analysts Journal (May/June 1998):5057.
CHAPTER 9 Franchise Valuation under Q-Type Competition 189
Martin L. Leibowitz
Reprinted from the Financial Analysts Journal (November/December 1998): 6274.
CHAPTER 10 Value Enhancement and Cash-Driven Valuation Models 209
Aswath Damodaran
Reprinted from AIMR Conference Proceedings: Practical Issues in Equity Analysis (February 2000):417.
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):8087.
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):414.
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):1528.
CHAPTER 14 Valuing Illiquid Common Stock 279
Edward A. Dyl and George J. Jiang
Reprinted from the Financial Analysts Journal (July/August 2008):4047.
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):3643.
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): 2028.
CHAPTER 18 Earnings Quality Analysis and Equity Valuation 375
Richard G. Sloan
Reprinted from CFA Institute Conference Proceedings Quarterly (September 2006): 5260.
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):5668.
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): 88100.
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):7684.
About the Contributors 587
Index 589