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Streetsmart Guide to Valuing a Stock The Savvy Investor's Key to Beating the Market

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ISBN-10: 0071345272

ISBN-13: 9780071345279

Edition: 1999

Authors: Gary Gray, Patrick Cusatis, Randall J. Woolridge

List price: $29.95
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The process of stock valuation involves considering such variables as P/E ratio, revenues, current stock price and outstanding debt. This can put some individual investors off. This book offers a straightforward guide to stock valuation.
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Book details

List price: $29.95
Copyright year: 1999
Publisher: McGraw-Hill Companies, The
Publication date: 5/27/1999
Binding: Hardcover
Pages: 234
Size: 6.30" wide x 9.10" long x 0.96" tall
Weight: 1.188
Language: English

Patrick Cusatis, Ph.D. is an assistant professor of finance at Penn State University at Harrisburg and a principal at Applied Finance Partners, LLC. He was formally an investment banker and derivatives portfolio manager and has consulted to many financial institutions and municipalities. He is the coauthor of Municipal Derivative Securities: Uses and Valuation and Streetsmart Guide to Valuing a Stock.Martin Thomas, Ph.D. is a principal at Applied Finance Partners, LLC. He is an Executive in Residence at Drexel University where he teaches graduate courses in Finance in the LeBow College of Business. A former financial services executive, he has extensive expertise helping companies to…    

Prefacep. xiii
Empower Yourself with Information!p. 1
Measure Your Bungee Cord!p. 1
The Focus of the Bookp. 2
The Four-Step DCF Approach to Valuationp. 3
The DCF Stock Valuation Processp. 4
Some Helpful Definitions Relating to Valuationp. 5
Your Mortgage: An Analogy for Valuationp. 6
Stock Valuation--Art, Science, or Hocus-Pocus?p. 8
Stock Valuation Approaches: Where Does DCF Fit?p. 9
Fundamental Analysisp. 10
Technical Analysisp. 13
Modern Portfolio Theoryp. 14
Our Valuation Philosophyp. 14
Where Do We Go from Here?p. 16
How to Value a Stockp. 19
Valuation Insights or Stock "Tips"p. 19
What Do We Mean by Returns to Stockholders?p. 20
Calculation of Return to Stockholdersp. 20
Investor Expectations Regarding Stock Market Returnsp. 20
Investor Expectations Regarding Returns of a Stockp. 22
Is a Stock Fairly Valued?p. 24
Stock Value versus Stock Pricep. 25
The DCF Approach: Microsoft--A Simplified Valuation Examplep. 28
Forecast Expected Cash Flowp. 29
Estimate the Discount Rate--The WACCp. 31
Calculate Value of the Corporationp. 34
Calculate the Intrinsic Stock Valuep. 35
The Next Stepp. 35
The Importance of Cash Flowp. 39
The Spirit of Cash Flow Yet to Comep. 39
Corporate Revenue, Expense, and Net Operating Profit Marginp. 39
Coporate Free Cash Flowp. 41
The Investment Rule for Corporate Managementp. 42
The Free Cash Flow to the Firm Philosophyp. 43
Free Cash Flow--Share Repurchase Programs versus Dividendsp. 44
Free Cash Flow--The Corporation's Investment Decisionp. 44
The FCFF Approach--Where Does It Work?p. 45
The Discounted FCFF Valuation Approachp. 45
The Four-Step Processp. 45
The Excess Return Period and Competitive Advantagep. 47
The Three Valuation Categoriesp. 49
Why DCF and Not EPS?p. 51
Valuation--Growth Versus Value, Large Cap versus Small Capp. 52
Valuation--The Next Stepp. 55
The Five Most Important Cash Flow Measuresp. 55
Forecasting Expected Cash Flowsp. 55
Revenue Growth Rate and the Excess Return Periodp. 56
Microsoft's Revenue Growth Ratep. 57
McDonald's Revenue Growth Ratep. 60
McDonald's Excess Return Periodp. 62
Valuation Inputs Relating to Revenue Growth and Excess Return Periodp. 63
Net Operating Profit Margin and NOPp. 64
Valuation Input Relating to NOPMp. 65
Income Tax Rate and Adjusted Taxesp. 66
Valuation Input Relating to Tax Ratep. 67
Net Investmentp. 68
Valuation Inputs Relating to Net Investmentp. 71
Incremental Working Capitalp. 72
Valuation Input Relating to Incremental Working Capitalp. 74
Free Cash Flow to the Firm--The Next Stepp. 75
Valuation Exercise: Estimating Free Cash Flow for McDonald'sp. 75
"Don't Count Until You Discount!"p. 81
Estimating the Cost of Capitalp. 81
The WACC as a Portfolio Returnp. 82
How to Measure the Cost of Capitalp. 83
Interest Rates, the Company's WACC, and Stock Valuesp. 83
Calculating the WACC and Market Capitalizationp. 85
Market Value Versus Book Valuep. 85
Estimating McDonald's WACCp. 87
Valuation Inputs Relating to Cost of Capital and Market Capitalizationp. 87
The Cost of Common Equity and Shares Outstandingp. 88
The Risk-Free Rate and Expected Returnsp. 89
The Return Relating to Common Stock in Generalp. 89
The Return Relating to an Individual Stockp. 90
Expected Return and the Capital Asset Pricing Modelp. 91
The Amount of Stock Outstanding--The Problem with Optionsp. 91
The After-Tax Cost of Debt and Debt Outstandingp. 93
The Spread to Treasuries--A Measure of Default Riskp. 93
The After-Tax Cost of Debtp. 94
The Cost of Preferred Stock and Stock Outstandingp. 95
After the Cost of Capital--The Next Stepp. 97
Valuation Exercise: Estimating the WACC for McDonald'sp. 97
Where and How to Obtain Information for Valuationsp. 101
Show Me the Info!p. 101
The Hard Wayp. 101
The Easy Wayp. 102
The Internet and the World Wide Web for Investor Informationp. 103
Corporate Web Sitesp. 103
Web Sites Devoted to Investment Informationp. 105
Corporate Valuation--Easy-to-Find Inputsp. 106
Income Statement Informationp. 106
Balance Sheet Informationp. 106
Cash Flow Statement Informationp. 107
Valuation Inputs Requiring Estimationp. 109
Valuation Inputs for Cost of Capitalp. 112
Current Stock Price and Shares Outstandingp. 113
30-Year Treasury Bond Yieldp. 114
Company Bond Yield Spread to Treasuryp. 115
Company Preferred Stock Yieldp. 115
The Equity Risk Premiump. 116
Company-Specific Betap. 116
Value of Debt and Preferred Stock Outstandingp. 117
Custom Valuations--The Next Stepp. 117
Valuation Exercise: McDonald'sp. 118
Valuations in Actionp. 121
Overviewp. 121
Valuation of Microsoftp. 122
General Description of Microsoft--The Quintessential Growth Companyp. 122
Baseline Valuation of Microsoft--August 27, 1998p. 123
Microsoft Valuation--Two-Stage Growthp. 131
Valuation of Intelp. 133
General Description of Intel--A "Great" Growth Companyp. 133
Baseline Valuation of Intel--August 28, 1998p. 134
Intel Valuation--What If There Are Lower NOPMs and Lower Growth Rates?p. 143
Valuation of Consolidated Edisonp. 145
General Description of ConEd--A "Decent" Utilityp. 145
Baseline Valuation of ConEd--August 31, 1998p. 148
ConEd Valuation--What Growth Rate Is Needed to Justify $47.31 per Share?p. 156
ConEd Valuation--What If There Are Higher Interest Rates and WACCs?p. 156
Valuation of ATandTp. 158
General Description of ATandT--A "Good" Value Companyp. 158
Baseline Valuation of ATandT--August 31, 1998p. 159
ATandT Valuation--What If There Are Increased NOPMs?p. 166
Valuation of McDonald'sp. 166
Baseline Valuation of McDonald's--September 1, 1998p. 168
McDonald's Valuation--What If There Are Increased NOPMs?p. 170
Where Do We Go from Here?p. 174
A Spreadsheet Valuation Approachp. 175
Layout of the Modelp. 176
General Input Screenp. 176
Weighted Average Cost of Capital Screenp. 177
General Pro Forma Screenp. 181
Custom Valuation Screensp. 183
How to Find the ValuePro Programp. 185
Web Site Addressesp. 187
Stock Market Efficiencyp. 189
Investors' Required Return on Stocksp. 203
Glossaryp. 215
List of Acronymsp. 225
Indexp. 227
Table of Contents provided by Syndetics. All Rights Reserved.