Corporate Finance: A Valuation Approach

Book Description

Designed for courses in corporate finance, this text is a detailed description of the valuation process, providing an integrated, comprehensive method for valuing assets, firms, and securities across a wide variety of industries. The presentation begins with a review of financial and accounting techniques, proceeds with a presentation of the valuation process, leading towards the development of pro-forma financial statements and the translation of these projections into values. A key strength of this text is teaching students how to use pro forma financial statements as a basis for valuation.

Customer Reviews:

An excellent valuation book that should be well known by a wider audience.......2007-02-08

Simon Benninga's and Oded Sarig's "Corporate Finance: A Valuation Approach" (CFaVA) is one of those secret texts that true insiders cherish while other less efficient or significant works capture limelight.

"CFaVA" is comparable to the McKinsey group authors Koller, Goedhart, Wessels's "Valuation: Measuring and Managing the Value of Companies" and also Aswath Damodaran's "Investment Valuation: Tools and Techniques for Determining the Value of Any Asset" [Full disclosure: I've taught graduate Corporate Valuation with both texts].

Benninga and Sarig's work is excellent because it is lean while not oversimplified. The key chapter of estimating discount rates is the finest one-chapter treatment of the subject I've seen in my career, and should be required reading for any M&A or LBO banker or PE associate. The chapter on valuing by multiples is also useful for relative value and comparative scenarios for deal-makers.

Chapter 12 covers convertible securities, and it would be unfair to say it is bad simply because it is compressed and incomplete (entire libraries have been written on the subject of convertible bond valuation), but also appears out of place in the content of the book until you realize that the random elements of a stock price going forward in time intersect with capital structure choices and enterprise value, so the connection and recursive element of valuation is made at once explicit with an example.

An excellent book that should be well known by a wider audience.

Ground Up Valuation Techniques.......2002-01-18

If you are new to corporate finance valuation this book will take you to the next level. Provides step by step instruction on how to value companies. Covers Excel techniques with easy to follow examples. Covers 1 full semester at most business schools.

An ideal introduction to company valuation.......2001-09-21

This book offers a very simple introduction to evaluation of companies prior to investing. The DCF method is primarily used. There is a common thread running through the chapters which makes the book easy to understand. Its not verbose, which adds to its attractiveness. But, the readers should remember that this is only an introduction, and some other advanced book like Copeland's is needed to build upon the ideas presented in the book.

A Solid Introductory Valuation Text.......2000-12-18

This book does a good job of logically explaining the step-by-step method of corporate valuation. Benninga and Sarig do a good job of focusing on the practical tools of finance. I only wish the DCF examples were less simplistic. A substantial amount of additional work is needed to apply these models to real world firms.

Fantastic book.......2000-05-22

This book serves as an excellent introduction to and/or refresher on valuation techniques. The entire valuation process (primarily DCF) is broken down into a series of steps, each of which gets its own complete chapter. Each chapter is well written and builds on its predecessors.

A particular strength of the book is the authors' reference to Excel functions and which ones are useful in valuation models. This book is not just theory; there are concrete "how to" examples throughout. Once you've finished this book, you can do more than cite valuation theory: you can build valuation models.

Customer Reviews:

Ensure that the CD is included.......2007-09-19

The book description does not say that the book should come with a CD - which is integral to the product.
The book is easy to read and up to date for when it was written; very practical.

Good reference for valuating companies using financial statements.......2007-07-04

I used this book in two "Business Analysis using Financial Statements" financial accounting classes and found it to be useful the few times I needed to use it as a reference.

The text represents what I think is a fair mix of both accounting (the reading and interpretation of financial statements) and finance (the valuation) perspectives. It contains more or less what I would have expected from a book with "A Valuation Approach" in the title: multiples, various valuation models (DCF, APV, etc), etc. But it's technically an accounting book in my mind, so it also contains examples for all of the major topics that it covers using 10-Ks, 10-Qs, and other SEC statements as examples.

Principles of Cash Flow Valuation: An Integrated Market-Based Approach (Graphics Series)

Average customer rating:

Tools for constructing integrated and consistent business valuation models
Cash flow and cost of capital in one theoretical system.
A comprehensive treatment of DCF
Waste of money

Principles of Cash Flow Valuation: An Integrated Market-Based Approach (Graphics Series)
Joseph Tham , and Ignacio Vélez-Pareja
Manufacturer: Academic Press
ProductGroup: Book
Binding: Hardcover

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ASIN: 0126860408

Book Description

The valuation of assets, both tangible and intangible, is an important element of corporate finance. Putting a price tag on ideas is almost impossible, and in the new economy, where companies grow dependent on intangible assets all the time, market volatility can be attributed in large part to our collective ignorance of their value. There are two basic approaches to valuation: from financial statements to cash flows, and from cash flows to financial statements. The former projects historical financial statements into the future and the latter attempts to construct cash flow statements and use them in forecasting future financial statements. Established companies use the first method and start-ups the second. In Principles of Cash Flow Valuation, the authors strive to "close the gap" between these two approaches by presenting the principles of cash flow valuation and cost of capital in a clear and systematic fashion.

* Provides the only exclusive treatment of cash flow valuation
* Authors use examples and a case study to illustrate ideas
* Presentation appropriate for a range of technical backgrounds: ideas are presented clearly, full exposition is also provided
* Named among the Top 10 financial engineering titles by Financial Engineering News

Customer Reviews:

Tools for constructing integrated and consistent business valuation models.......2006-04-21

In the modern business environment, one of the most important tasks for CEOs and CFOs is related to the development of integrated and consistent business valuation models.

Tham & V?lez Pareja`s book is a well-oriented proposal in that sense and could be judged for what it has to offer: an organized and specific approach for structuring and valuating the firm cash flows with a special treatment in Non-Traded firms, and from that point of view a useful tool for fundamental valuation in emerging markets.

The authors begin with a definition of basic concepts in market-based cash flow valuation and a brief review of financial statements and accounting concepts, before explaining in full detail the integrated approach for the construction of four interrelated proforma financial statements: the Balance Sheet, the Income Statement, the Cash Flow Statement, and the annual Cash Budget Statement. These four financial statements form the basic building blocks for the valuation exercise.

Aditionally, Tham & V?lez Pareja have exposed several methods for deriving the firm cash flows. Special emphasis is given to the five advantages of deriving the Free Cash Flow from the Cash Budget Statement: simplicity, usefulness as a managerial tool, consistency, representation of reality and flexibility for purposes of sensitivity and scenario analysis.

Next, the authors have examined some critical issues related to the calculation of the Terminal Value and have exposed the need to guarantee the amount of reinvestment for growth in the Free Cash Flow, showing the importance of specifying the ROMVIC (Return on Market Value of Invested Capital).

The last part of the book is very useful from a practitioner?s point of view, because the case study enables the application of the main topics in the book.

This is not a book about sophisticated tools for valuing real options. It?s a book about how to construct integrated and consistent corporate valuation models, a simple but usually ignored necessity of good corporate financial models.

I would recommend the book to those who clearly understand the main topics of business valuation and its role in corporate finance, and are open-minded to new proposals in a well known field.

JUAN CARLOS GUTI?RREZ B.
FINANCE PROFESSOR
EAFIT University
Medell?n, Colombia

Cash flow and cost of capital in one theoretical system. .......2006-04-17

If you need to understand the basic fundamentals of valuation, Principles of cash flow valuation, an integrated market-based approach, is the book you need.
The book thoroughly describes valuation techniques, explaining the theory and giving comprehensive examples. Techniques for translating the financial statements into free cash flows and variations of the discounted cash flow approach are well described in a pedagogical way. Few books put the topics (Modigliani-Miller propositions, CAPM, tax shield, investment, cost of capital) in one theoretical system.
Plus, Professors V?lez Pareja and Tham maintains a free website where you can find valuation and cost of capital models.
Principles of cash flow valuation is a rigorous, detailed textbook on topics in valuation for Master finance courses.

A comprehensive treatment of DCF.......2006-04-05

In my view, this is an excellent textbook for students who are either becoming acquainted with the discounted cash-flows technique or would like to freshen up their knowledge in the subject.

Waste of money.......2005-12-11

If you have basic understanding of accounting, you won't learn anything from the book.

CFROI Cash Flow Return on Investment Valuation : A Total System Approach to Valuing the Firm

Average customer rating:

Good primer for non-finance people; fun, light mental workout for practitioners
CFROI explains stock prices better than P/E ratios
The millenium stock selection model

CFROI Cash Flow Return on Investment Valuation : A Total System Approach to Valuing the Firm
Bartley Madden
Manufacturer: Butterworth-Heinemann
ProductGroup: Book
Binding: Hardcover

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ASIN: 0750638656

Book Description

What generates shareholder value? How can it be evaluated? How can it influence investment decisions and corporate strategy? Cash Flow Return On Investment answers all these questions by detailing the pioneering financial research carried out by HOLT Value Associates, the leading consultancy in the field.

Read this book if you want to find out what really drives the wealth generation in any business, allowing you to pick which equities will succeed and which strategic initiatives are destined for high returns.

The CFROI model is an essential tool for professionals working in finance and corporate strategy. It clarifies how economic value is created in a firm and acts as a reliable guide to:

* making investment decisions
* taking key strategic decisions
* understanding economic value

Shows how to judge and compare individual equities across markets and company sectors
Cutting edge theory and practice
The leading book about shareholder value authored by one of the world's leading consultancies in the field

Customer Reviews:

Good primer for non-finance people; fun, light mental workout for practitioners.......2006-02-24

Madden's "CFROI Valuation" is a good primer on valuation, especially for non-financial practitioners, managers, and executives of public firms who have been pounded in the last decade with the goal of maximizing shareholder value today - even at the risk of tomorrow. A cursory review of numerous other books and articles on valuation shows that the topic has become somewhat of an art-meets-science cliché. Madden provides a relatively fresh approach on the topic using the cashflow return on investment (CFROI) perspective.

Standard valuation is largely driven by a measure of cashflows, the long and short term capital investment required to achieve such cashflows, the growth and sustainability of such cashflows, and a cost of capital used to fund such activities. Here the science begins to shift into art - to determine what to do with the cashflows - usually to discount them and/or to apply some metric to arrive at value.

Similar to other widely read valuation books such as Koller's "Valuation" published by McKinsey & Co. and "Damodaran on Valuation", I would recommend this book especially to non-financial managers and executives, as an informative, introductory primer on valuation. Madden provides easy-to-understand, step-by-step guidance on valuing a company including analytical assumptions (remember the art!). Though much of the book is presumably written from the perspective of an institutional investor analyzing stocks, Madden delves into CFROI with enough breadth to make valuation and other financial professionals ponder its broader applications.

With that said, I think practitioners including investment bankers, business appraisers, and valuations consultants as well as CFO's and heads of corporate development may find Madden's "CFROI Valuation" a fun work-out of the mind. The book provides useful frameworks around which to ponder current events and trends with a less conventional valuation approach.

In dispelling traditional valuation methods and practices, Madden helps to remind, though not explicitly stating such, that formulas and technical analysis may measure value but they don't determine value.

CFROI explains stock prices better than P/E ratios.......1999-06-30

Best finance book I have read in years!

The book is a quick read and does a terrific job of explaining the investment framework employed by institutional portfolio managers world-wide. CFROI brings the concept of return on invested capital to a more robust level by providing the investor with a greater understanding of stock price movement and valuation.

This book is a must read if you expect to outperform the market. The increased complexity of accounting rules over the last decade has forced investors to apply an analysis process focused on a company's future cash flows. The accuracy of the CFROI valuation framework places traditional analysis and EVA at the bottom of the investor's toolbox. CFROI can help you avoid value trap stocks and step up to high PE stocks who are expected to create wealth for their shareholders.

The millenium stock selection model.......1998-11-22

Madden's text substitutes empirical fact for academic claptrap, clearing away the underbrush of neat-though-erroneous theories like CAPM and EVA, giving the conscientious professional and serious amateur a meticulous roadmap to superior understanding and investment returns. Or in Madden's words, "The employment of CAPM/beta and related procedures has become a ritual due not to empirical usefulness, but to its mathematical elegance - the touchstone of mainstream academic corporate finance." The justification for CFROIs demanding discipline is demonstrated early in the text in an example, wherein the past real record of a hypothetical firm with a stable 6.5 % ROI is converted into GAAP accounting numbers from which an ROI series is calculated. In re the accounting-based return history, Madden asks, "Who referring to (the chart) would not be misled about a firm's performance relying on the (ROI gyrating between + 24% and -10%) while the economic performance did not vary?" In short, if you don't know the facts, you can't solve the mystery. The predictive and interpretive powers of the system's valuation metric is the result of plain hard work, not the magical properties of some lazy man's statistical dowsing rod like Earnings Momentum. Last widely employed during the Tulip Craze of an earlier century, Earnings Momentum is based on the dubious concept that as long as accounting earnings, surreal and manipulable though they be, go up, the stock should go up as fast as it does go up, unless earnings don't go up as fast as expected, in which case we've been disappointed, so it's not worth anything until the bookies can reestablish the odds. Had we all expended the necessary effort on CFROI, we might have anticipated or at least understood to our financial benefit and peace of mind: IBM problems in the mid-80s to mid-90s that led to a restructuring; Wal-Mart's staggering gait beginning in the late 80's that produced unsatisfactory price action in the early 90's; Hewlett Packard's defiance of gravity in maintaining an exceptional internal rate of return; ditto Abbot Labs, Hershey and Wrigley's outperforming the market; the rebound of Analog Devices and the volatility of Advanced Micro Devices; and so on and on. The CFROI knowledge system dissects the firm and the value creation process, meticulously separating the past and present from the nebulous future, thereby establishing a mathematical basis for professional investment decision making. The CFROI valuation model applies dividend discount technique to inflation-adjusted cash flow growth projections, using a firm-specific risk premium plus the market-required rate of return to determine the firms warranted value and the equity's warranted price. CFROI resolves two fundamental equity valuation issues: the recognized fallibility of the Capital Asset Pricing Model and the inherent inconstancy of accounting data. The former supplying a counter-intuitive cost of capital or required rate of return; the other concealing the real prospects of the firm's wealth creating efforts. As the lengthy flow charts detailing the process required to turn accounting hash into economic reality attest, CFROI is not a black box of unexplained miracles. It's a sweatshop equipped with empirically-proven, high tech tools which give the driven amateur and dedicated professional the means to outrun the herd.

The Market Approach to Valuing Businesses

Average customer rating:

As we have come to expect, Pratt is exceptional.

The Market Approach to Valuing Businesses
Shannon P. Pratt
Manufacturer: Wiley
ProductGroup: Book
Binding: Hardcover

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ASIN: 0471359289

Book Description

Your Best Approach to Determining Value

If you're buying, selling, or valuing a business, how can you determine its true value? By basing it on present market conditions and sales of similar businesses. The "market approach" to valuing businesses is quickly becoming popular for determining the value of a business or partnership. Praised for its objectivity, the approach is the model most favored by the IRS and the United States Tax Court-as long as it's properly implemented.

With Shannon Pratt's The Market Approach to Valuing Businesses, buyers and sellers can best ensure effective market approach implementation. Designed for anyone who needs to carry out or review a market approach to valuation, this book serves as both practical tutorial and handy desk reference.

In this comprehensive guide, you'll find information on valuing and its applications, case studies on small and midsize businesses, and a detailed analysis of the latest market approach developments as well as:

A critique of U.S. acquisitions over the last 20 years
An analysis of the effect of size on value
Common errors in applying the market approach
Court reactions to the market approach

Must-reading for anyone who owns or holds a partial interest in a small or large business or a professional practice, The Market Approach to Valuing Businesses will show you how to successfully reach a fair agreement.
www.wiley.com/accounting

Download Description

Your Best Approach to Determining Value If you're buying, selling, or valuing a business, how can you determine its true value? By basing it on present market conditions and sales of similar businesses. The market approach is the premier way to determine the value of a business or partnership. With convincing evidence of value for both buyers and sellers, it can end stalemates and get deals closed. Acclaimed for its empirical basis and objectivity, this approach is the model most favored by the IRS and the United States Tax Court-as long as it's properly implemented. Shannon Pratt's The Market Approach to Valuing Businesses, Second Edition provides a wealth of proven guidelines and resources for effective market approach implementation.

Customer Reviews:

As we have come to expect, Pratt is exceptional........2001-06-10

Everyone with even a causal interest in business valuation respects Shannon Pratt. He lives up to his reputation in The Market Approach. My favorite is the contrast and comparison of the different data available for private transactions.

Book Description

Quantitative Business Valuation is the first authoritative work to guide professionals through the business valuation process with a quantitative—as opposed to qualitative—focus. Jay Abrams’s unique methodology combines original research and mathematical material to lead readers through an integrated approach to forecasting cash flow, calculating discount rates, calculating discounts and premiums, and much more.

Customer Reviews:

Great Contribution.......2003-02-26

Abrams adds an important element of rigor that is sorely lacking among most valuation professionals.

Excellent, New Approach.......2002-06-12

This text is an excellent addition to the business valuation literature. The author explores a wide variety of approaches with new methods that are easy to follow. A tremendous amount of work went into the preparation of this book and it is very well written. There is a chapter on startup companies that is especially interesting to me.

If you are at all interested in the income method for valuing businesses, I would strongly encourage you to buy this book. In a review on the back cover of the text, Shannon Pratt strongly recommends the book because the author presents "a scholarly summary of past research, new empirical research of his own, and his conclusions".

My only criticism and surprise is the lack of use of Monte Carlo simulation in these models, which is surprising to me considering how statistically focused the author is and how easy simulation is to learn and employ. Also, the use of real options for valuing startups is extremely important but the author does acknowledge this subject is beyond the scope of his book. Extremely well done and the author should be proud of producing work of this caliber. I'm looking forward to future editions and other books by Jay B. Abrams.

This is Eye-opener.......2002-04-01

As a Finance MBA, this book is recommended. Why? First of all, this is a practical book that would show us how to assess and forecast the business and cash flow. Furthermore, step-by-step approach is helpful in understanding valuation of privately held firms.

Very helpful in understanding quantitative valuation.......2002-03-25

As a Finance major MBA, this book is recommended. This is an effective tool kit to value firms.

Well Researched Quantitative Approach to Business Valuation.......2000-12-30

Jay Abrams' book is intended primarily for the professional business appraiser, although other financial professionals such as financial analysts, investment bankers, and venture capitalists may well find the book useful.

The business valuation topics covered include (not an exhaustive list): mathematical derivation of cash flow; appplication of regression analysis; theoretical and empirical superiority of arithmetic mean; adjusting for levels of control and marketability; empirical tests of Abrams' valuation theories; valuing startups; and measuring and apportioning dilution in ESOPs.

For each topic covered, the author presents a scholarly summary of past research, new empirical research of his own, and his conclusions. He discusses opposing viewpoints and in at least one chapter allows another author to present a rebuttal of Abrams' approach.

He emphasizes regression analysis of empirical data and quantitative analysis. Near the end he puts all the pieces of the puzzle together to present a comprehensive, unified approach to valuation that can be empirically tested and whose principles work for the valuation of billion dollar firms or small businesses.

Despite the quantitative nature of the book, mathematically challenged readers without recent or extensive mathematical training should not hesitate to buy the book, as long as they are familiar with basic business valuation concepts. The book contains relatively simple and clear explanations of quantitative methods such as regression analysis; and the author has taken pains to include step-by-step procedures for performing regression analysis using Excel and Lotus. Indeed, one of the strengths of the book is that it makes quantitative techniques available to the appraiser who could not, without the author's help, understand the underlying mathematics or utilize the quantitative techniques with confidence and comprehension.

Book Description

How can we value an enterprise that has no earnings or cash flows, so that traditional and conventional valuation techniques are therefore not applicable? This book addresses the problem, and presents a model for valuing enterprises that may have no existing assets but only growth opportunities.

Customer Reviews:

Valuation of Corporate Growth Opportunities.......2001-07-23

This book appears to be a hastily published version of the author's 1998 doctorate work (the Zicklin School of Business/Baruch College/CUNY). Technically, the book may be excellent. However, my first impression of the book is very unsettling. The copy that I received is bound/embossed backwards (compared to most books). There are so many grammatical errors that it causes one to question the accuracy of the numerous equations. Hopefully, a different editor proofed the equations than the one that proofed the text. Finally, very many references are NOT included in the bibliography. For example, see note 20 on page 25: neither Lander and Pinches (1998) nor Trigeogis (1995) are included. I have returned the book.

Valuation of Corporate Growth Opportunities.......2001-07-23

This book appears to be a hastily published version of the author's doctorate work (apparently at Columbia University). Technically, the book may be excellent. However, my first impression of the book is unsettling. The copy that I received is bound/embossed backwards (compared to most books). There are so many grammatical errors that it causes one to question the accuracy of the numerous equations. Hopefully, a different editor proofed the equations than the one that proofed the text. Finally, very many references are NOT included in the bibliography. For example, see note 20 on page 25: neither Lander and Pinches (1998) nor Trigeogis (1995) are included. I have returned the book.

Valuation of Corporate Growth Opportunities.......2001-07-23

Intermediate Corporate Finance with Selected Materials from Fundamentals of Corporate Finance (Alternate 5th Edition); Corporate Finance (6th Edition); The New Corporate Finance (3rd Edition), and Corporate Finance: A Valuation Approach (Course F305 Kelley School of Business, IU)

Average customer rating:

Intermediate Corporate Finance with Selected Materials from Fundamentals of Corporate Finance (Alternate 5th Edition); Corporate Finance (6th Edition); The New Corporate Finance (3rd Edition), and Corporate Finance: A Valuation Approach (Course F305 Kelley School of Business, IU)
Stephen A Ross , Jeffrey Jaffe , and Donald H Chew
Manufacturer: McGraw-Hill Primis Custom Publishing
ProductGroup: Book
Binding: Paperback
ASIN: 0072514264

Translating Strategy into Shareholder Value: A Company-Wide Approach to Value Creation

Average customer rating:

Well-written, useful business resource!

Translating Strategy into Shareholder Value: A Company-Wide Approach to Value Creation
Raymond J. Trotta
Manufacturer: AMACOM/American Management Association
ProductGroup: Book
Binding: Hardcover

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ASIN: 0814405649

Book Description

Too often there are serious missed signals between a company's stated goals and the methods employed to try to reach them. Translating Strategy into Shareholder Value is a unique look at how the planning process relates to the achievement of shareholder value, and ways to ensure that the two directly complement each other. Using tools and a special case study to analyze past, present, and future performance, the book takes readers through a host of steps, including:

* Comparing existing strategy to the competition and the economy as a whole * Analyzing productive capabilities and costs * Bringing nonfinancial metrics to test how future strategy creates value * Selecting the right analytical tool and looking at strategic solutions

If corporations are to truly maximize their success, managers need to understand how to translate corporate strategy to the bottom line -- and that means seeing the big picture.

Customer Reviews:

Well-written, useful business resource!.......2003-10-09

"Translating Strategy into Shareholder Value" is a well-organized, clearly written guide to effectively evaluating the multitude of strategic alternatives available to an organization within the strategic planning process. With the maximization of shareholder value as the end goal, author Trotta introduces the original concept of Step-Wise Approach to Value (SWAV) to help companies achieve that goal. SWAV involves the application of four filters (economic, strategic, operational and valuation) through which strategic alternatives can be analyzed. A number of specific analytical tools such as the Porter Model, the DuPont model, Regression Analysis and Discounted Cash Flow are discussed in detail. I found it helpful that Trotta addresses not only the benefits of each of these tools, but the risks and limitations as well. This book would be a useful resource for financial decision-makers, business owners,students and anyone seeking concrete advice on making better strategic planning decisions.

Average customer rating:

Corporate Finance: A Valuation Approach
Simon; Sarig, Oded H.; Banninga, Simon Z. Benninga
Manufacturer: McGraw-Hill/Irwin
ProductGroup: Book
Binding: Paperback
ASIN: B000OF8Y9U

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