Corporate Valuation A Guide for Managers and Investors with Thomson ONE

ISBN-10: 0324274289
ISBN-13: 9780324274288
Edition: 2004
List price: $211.95
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Description: This book has two significant advantages relative to other books and software on the topic of valuation. First, the expository approach of the authors is very user-friendly, with a pedagogy designed to build confidence. They begin with a very  More...

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Book details

List price: $211.95
Copyright year: 2004
Publisher: Cengage South-Western
Publication date: 10/7/2003
Binding: Paperback
Pages: 320
Size: 7.50" wide x 9.25" long x 0.50" tall
Weight: 3.234
Language: English

This book has two significant advantages relative to other books and software on the topic of valuation. First, the expository approach of the authors is very user-friendly, with a pedagogy designed to build confidence. They begin with a very simple, but complete example in the first couple of chapters that takes the reader through the valuation of a company. They repeat the analysis for a slightly more complicated company in chapters 3-4. A repeat of the analysis is then completed in chapters 5-8 for an even more complicated company. This iterative approach allows the reader to absorb ?digestible? amounts of material before moving on to the next level of complication. The second pedagogic advantage is the structure of their spreadsheet valuation model. They show the reader how to get real world data, and how to cut-and-paste it into their spreadsheet. The spreadsheet simplifies the complex accounting found in most actual companies? financial statements and condenses it into a simplified set of standardized financial statements. This allows the user to concentrate on the fundamental economic forces that underlie a company?s value.

Dr. Phillip R. Daves is Associate Professor of Finance at the University of Tennessee in Knoxville. His research interests encompass health care finance, asset pricing, derivative securities, and dividend policy. He has published papers in THE JOURNAL OF FINANCE, THE INTERNATIONAL JOURNAL OF FINANCE, APPLIED FINANCIAL ECONOMICS, JOURNAL OF FINANCIAL PRACTICE AND EDUCATION, and THE JOURNAL OF FINANCIAL AND STRATEGIC DECISIONS. Dr. Daves' special interests in teaching include health care finance, investments, financial management, and asset pricing--which he teaches at the undergraduate, M.B.A., and Ph.D. levels. Consulting for a range of large and small companies as well as the state of Tennessee, he focuses on business valuation, compensation, value based management, and health care policy. He received his B.A. in economics from Davidson College, his M.S. in mathematics, and his Ph.D. in finance from the University of North Carolina at Chapel Hill.

Dr. Michael C. Ehrhardt is a Professor in the Finance Department and is the Paul and Beverly Castagna Professor of Investments. He completed his undergraduate work in Civil Engineering at Swarthmore College. After working several years as an engineer, he earned his M.S. in Operations Research and Ph.D. in Finance from the Georgia Institute of Technology. Dr. Ehrhardt has taught extensively at the undergraduate, masters, and doctoral levels in the areas of investments, corporate finance, and capital markets. He has directed and served on numerous dissertation committees and is a member of the team that developed and delivered the integrative first year of the MBA program. Dr. Ehrhardt teaches in Executive Education Programs and consults in the areas of corporate valuation, value-based compensation plans, financial aspects of supply-chain management, and the cost of capital. He has been awarded the Allen G. Keally Outstanding Teacher Award, the Tennessee Organization of MBA Students Outstanding Faculty member, the College of Business Administration Research & Teaching Award, and the John B. Ross Outstanding Teaching Award in the College of Business. Much of his research focuses on corporate valuation and asset pricing models, including pricing models for interest-rate sensitive instruments. His work has been published in numerous journals, including The Journal of Finance, Journal of Financial and Quantitative Analysis, Financial Management, The Financial Review, The Journal of Financial Research, and The Journal of Banking and Finance. He has also authored or co-authored several books addressing various areas of finance.

About the Author
Preface
Basic Concepts of Corporate Valuation
Why Corporate Valuation?
Introduction
Our Goals
Our Approach: One Step at a Time
Discounted Cash Flow Techniques
Accounting Skills
Technology Skills
Preview of What's Ahead
Summary
A Complete Corporate Valuation for a Simple Company
Introduction
The Basic Concepts of Valuation
Valuing a Very Simple Company
Investors
The Corporate Valuation Model
The Weighted Average Cost of Capital
Calculating Free Cash Flows
An Overview of Financial Statements
The Balance Sheet
The Income Statement
Calculating Free Cash Flows
Calculating NOPAT
Calculating Operating Capital
Free Cash Flow
Corporate Valuation
Corporate Performance: The Return on Invested Capital
Applications of the Corporate Valuation Model
Mergers and Acquisitions
Value-Based Management
Fundamental Investing
Summary
Spreadsheet Problems
Comparing Bond and Stock Valuation Models with the Corporate Valuation Model
Bond Pricing
The Discounted Dividend Model of Stock Pricing
The Uses of Free Cash Flow
Intermediate Concepts of Corporate Valuation
Financial Statements and Free Cash Flow
Introduction
What Is Cash Flow, Anyway?
When Do You Record It? A "Cruel" Rule
The Balance Sheet
The Income Statement
The Statement of Shareholder's Equity
The Statement of Cash Flows
ACME's Free Cash Flow
Defining Free Cash Flow
ACME's Operating Performance
Summary
Spreadsheet Problems
Reconciling Free Cash Flow with the Statement of Cash Flows
Estimating the Value of ACME
Introduction
The Weighted Average Cost of Capital
Risk and Return
Estimating the Cost of Debt
Estimating the Cost of Common Stock
Estimating the Target Weights
Putting the Pieces Together: Calculating the WACC
Estimating the Future Expected Free Cash Flows
Alternative Valuation Approaches: The Method of Multiples
Summary
Spreadsheet Problems
Security Valuation
The Whole versus the Sum of the Parts
Fundamentals of Security Valuation
Projecting Financial Statements
Projecting Free Cash Flows
Introduction
Requirements for Useful Financial Projections
Van Leer, Inc.
Projecting Financial Statements
Modeling the Financial Statements
Choosing Inputs for the Model
Calculating Free Cash Flow
Summary
Spreadsheet Problems
Projecting Consistent Financial Statements: The Miracle of Accounting
Introduction
Financial Policies and Projecting Financial Statements
Projecting Long-Term Debt and Dividends
Making Balance Sheets Balance: The Plug Approach
Projecting Interest Expense and Interest Income
Completing the Projections: Implementing the Financial Policies
Projecting a Complete Income Statement
Projecting Complete Balance Sheets
Checking Your Projections for Plausibility
Summary
Spreadsheet Problems
Multiyear Projections and Valuation
Introduction
One-Year versus Multiyear Projections
In the Short Run Anything Can Happen. In the Long Run...
Considerations for the Long Run
Projecting Operating Profit
Projecting Operating Capital
Projecting Operating Taxes
Dividend and Debt Ratios
The Projected Statements
Balancing
Checking the Projections
Using Projections for Valuation
Summary
Spreadsheet Problems
Technical Issues in Projecting Financial Statements and Forecasting Financing Needs
Introduction
When Projections Aren't a Percentage of Sales
Linear Model with Intercept
Nonlinear Models
Lumpy Assets
Financial Modeling: Art versus Science
Alternative Financing Policies
Alternative Dividend Policies
Alternative Common Stock Policies
Projecting Interest Expense Based on the Average Debt during the Year
Algebraic Solution to Circularity
Spreadsheet Solution to Circularity
An Illustration Using Van Leer
Summary
Spreadsheet Problems
Valuing Actual Companies with the Corporate Valuation Spreadsheet
The Starting Point for Corporate Valuation: Historical Financial Statements
Introduction
An Overview of the Corporate Valuation Spreadsheet
Get the Actual Historical Financial Statements of a Company
Link the Actual Statements to the Comprehensive Statements
Condensing the Comprehensive Statements
Analyzing the Current and Historical Financial Position of the Company
Estimating the Weighted Average Cost of Capital
Choose the Inputs for Your Projections
Completing the Valuation
Getting Financial Statements from the Internet
Thomson Financial and Thomson ONE-Business School Edition
Edgar
EdgarScan
Yahoo!
Company Web Pages
Mapping Your Financial Statements from the Actual Worksheets into the Comprehensive Worksheet
Income Statement
Balance Sheets
Required Special Items
Optional Special Items
Summary
Spreadsheet Problems
Why We Condense the Financials
The Condensed Financial Statements and Historical Analysis
Introduction
The Condensed Statements
Additional Detail on Operating Performance
Additional Detail on Nonoperating Performance
Adjustments Due to GAAP
Calculating Free Cash Flow
NOPAT Calculation
Free Cash Flow Calculations
Analyzing Home Depot's Past and Present Condition
Analysis of Ratios Required to Project Financial Statements
Analysis of Traditional Ratios as Compared to Competitors
Summary
Spreadsheet Problems
Mapping the Comprehensive Statements to the Condensed Statements: Advanced Issues in Measuring Free Cash Flows
Introduction
Overview of Financial Statement Adjustments and Condensing
Income Statements
Balance Sheets: Current Assets
Balance Sheets: Long-Term Assets
Balance Sheets: Current Liabilities
Balance Sheets: Long-Term Liabilities and Equity
An Explanation of Complicated Accounting and the Impact on FCF
Goodwill
Minority Interests
Investments and Advances
Operating Leases
Pension-Related Liabilities
LIFO Reserves
Foreign Currency Translations
Employee Stock Options
Summary
Estimating the Weighted Average Cost of Capital
Introduction
Estimating the Target Weights
Estimating the Values of the Financing Components
Estimating the Target Weight for Long-Term Debt
Estimating the Target Weight for Short-Term Debt
Estimating the Target Weight for Preferred Stock
Estimating the Target Weight for Common Equity
Estimating the Cost of Long-Term Debt
Estimating the Cost of Short-Term Debt
Estimating the Cost of Preferred Stock
Estimating the Cost of Common Stock
Putting the Pieces Together: Calculating the WACC
Complications and Advanced Issues
Convertible Securities
Privately Held Firms and Divisions
Summary
Spreadsheet Problems
Projecting Cash Flows for an Actual Company: Home Depot
Introduction
A Useful Perspective on Projections
The Mechanics of Projecting the Condensed Statements
Using Fade Rates to Input Forecasted Growth Rates
Using Fade Rates to Forecast Home Depot's Growth Rates
Choosing the Other Inputs Needed to Project Free Cash Flow
Choosing the Inputs to Project NOPAT
Choosing the Inputs to Project Operating Capital
Choosing the Inputs to Calculate Operating Taxes
Choosing Inputs to Complete the Projections
Specifying the Dividend and Capital Structure Policies
Specifying the Nonoperating Items
Specifying Interest Rates
Completing the Inputs
Using Quarterly Data to Improve Your Inputs
Reviewing Your Choices of Inputs
Avoiding an Error in Your First Year's Projections
Spotting Errors
Summary
Spreadsheet Problems
Top-Down Analysis
The Macro Prospective: Global and National
The Industry-Level Perspective
The Firm-Level Point of View
The Valuation of an Actual Company: Home Depot
Introduction
Horizon Value Methods
The Continuing Value Horizon Formula
The Book Value Horizon Formula
The Convergence Value Horizon Formula
The General Value Horizon Formula
The Horizon Value for Home Depot
The Value of Operations for Home Depot
The Half-Year Adjustment
Estimating the Value at Times Other than Fiscal Year-End
The Valuation of Home Depot
Projections of Other Financial Measures
Reverse Engineering/Scenario Analysis
Valuing a Company with a Changing Capital Structure
Summary
Spreadsheet Problems
The Adjusted Present Value Method
Capital Structure and the Value of a Company
Too Much Debt and Bankruptcy Costs
Too Much Debt and Managerial Behavior
Valuation When Debt Is Moderate
The Unlevered Value of Operations
The Value of the Tax Shield
Index

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