Investment Valuation Tools and Techniques for Determining the Value of Any Asset 3rd Edition by Aswath Damodaran 111801152X 9781118011522

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ISBN 10: 111801152X

ISBN 13: 9781118011522

Author: Aswath Damodaran

The definitive source of information on all topics related to investment valuation tools and techniques Valuation is at the heart of any investment decision, whether that decision is buy, sell or hold. But the pricing of many assets has become a more complex task in modern markets, especially after the recent financial crisis. In order to be successful at this endeavor, you must have a firm understanding of the proper valuation techniques. One valuation book stands out as withstanding the test of time among investors and students of financial markets, Aswath Damodaran’sInvestment Valuation.Now completely revised and updated to reflect changing market conditions, this third edition comprehensively introduces investment professionals and students to the range of valuation models available and how to chose the right model for any given asset valuation scenario. This edition includes valuation techniques for a whole host of real options, start-up firms, unconventional assets, distressed companies and private equity, and real estate. All examples have been updated and new material has been added. Fully revised to incorporate valuation lessons learned from the last five years, from the market crisis and emerging markets to new types of equity investments Includes valuation practices across the life cycle of companies and emphasizes value enhancement measures, such as EVA and CFROI Contains a new chapter on probabilistic valuation techniques such as decision trees and Monte Carlo Simulation Author Aswath Damodaran is regarded as one of the best educators and thinkers on the topic of investment valuation This indispensable guide is a must read for anyone wishing to gain a better understanding of investment valuation and its methods. With it, you can take the insights and advice of a recognized authority on the valuation process and immediately put them to work for you.

Investment Valuation Tools and Techniques for Determining the Value of Any Asset 3rd Table of contents:

CHAPTER 1 Introduction to Valuation

A Philosophical Basis for Valuation

Generalities about Valuation

The Role of Valuation

Conclusion

Questions and Short Problems

CHAPTER 2 Approaches to Valuation

Discounted Cash Flow Valuation

Relative Valuation

Contingent Claim Valuation

Conclusion

Questions and Short Problems

CHAPTER 3 Understanding Financial Statements

The Basic Accounting Statements

Asset Measurement and Valuation

Measuring Financing Mix

Measuring Earnings and Profitability

Measuring Risk

Other Issues in Analyzing Financial Statements

Conclusion

Questions and Short Problems

CHAPTER 4 The Basics of Risk

What is Risk?

Equity Risk and Expected Return

Alternative Models for Equity Risk

A Comparative Analysis of Equity Risk Models

Models of Default Risk

Conclusion

Questions and Short Problems

CHAPTER 5 Option Pricing Theory and Models

Basics of Option Pricing

Determinants of Option Value

Option Pricing Models

Extensions of Option Pricing

Conclusion

Questions and Short Problems

CHAPTER 6 Market Efficiency—Definition, Tests, and Evidence

Market Efficiency and Investment Valuation

What Is an Efficient Market?

Implications of Market Efficiency

Necessary Conditions for Market Efficiency

Propositions about Market Efficiency

Testing Market Efficiency

Cardinal Sins in Testing Market Efficiency

Some Lesser Sins That Can Be a Problem

Evidence on Market Efficiency

Time Series Properties of Price Changes

Market Reaction to Information Events

Market Anomalies

Evidence on Insiders and Investment Professionals

Conclusion

Questions and Short Problems

CHAPTER 7 Riskless Rates and Risk Premiums

The Risk-Free Rate

Equity Risk Premium

Default Spreads on Bonds

Conclusion

Questions and Short Problems

CHAPTER 8 Estimating Risk Parameters and Costs of Financing

The Cost of Equity and Capital

Cost of Equity

From Cost of Equity to Cost of Capital

Best Practices at Firms

Conclusion

Questions and Short Problems

CHAPTER 9 Measuring Earnings

Accounting versus Financial Balance Sheets

Adjusting Earnings

Conclusion

Questions and Short Problems

CHAPTER 10 From Earnings to Cash Flows

The Tax Effect

Reinvestment Needs

Conclusion

Questions and Short Problems

CHAPTER 11 Estimating Growth

The Importance of Growth

Historical Growth

Analyst Estimates of Growth

Fundamental Determinants of Growth

Qualitative Aspects of Growth

Conclusion

Questions and Short Problems

CHAPTER 12 Closure in Valuation: Estimating Terminal Value

Closure in Valuation

The Survival Issue

Closing Thoughts on Terminal Value

Conclusion

Questions and Short Problems

CHAPTER 13 Dividend Discount Models

The General Model

Versions of the Model

Issues in Using the Dividend Discount Model

Tests of the Dividend Discount Model

Conclusion

Questions and Short Problems

CHAPTER 14 Free Cash Flow to Equity Discount Models

Measuring What Firms Can Return to Their Stockholders

FCFE Valuation Models

FCFE Valuation versus Dividend Discount Model Valuation

Conclusion

Questions and Short Problems

CHAPTER 15 Firm Valuation: Cost of Capital and Adjusted Present Value Approaches

Free Cash flow to the Firm

Firm Valuation: The Cost of Capital Approach

Firm Valuation: The Adjusted Present Value Approach

Effect of Leverage on Firm Value

Adjusted Present Value and Financial Leverage

Conclusion

Questions and Short Problems

CHAPTER 16 Estimating Equity Value per Share

Value of Nonoperating Assets

Firm Value and Equity Value

Management and Employee Options

Value per Share When Voting Rights Vary

Conclusion

Questions and Short Problems

CHAPTER 17 Fundamental Principles of Relative Valuation

Use of Relative Valuation

Standardized Values and Multiples

Four Basic Steps to Using Multiples

Reconciling Relative and Discounted Cash Flow Valuations

Conclusion

Questions and Short Problems

CHAPTER 18 Earnings Multiples

Price-Earnings Ratio

The PEG Ratio

Other Variants on the PE Ratio

Enterprise Value to EBITDA Multiple

Conclusion

Questions and Short Problems

CHAPTER 19 Book Value Multiples

Price-to-Book Equity

Applications of Price–Book Value Ratios

Use in Investment Strategies

Value-to-Book Ratios

Tobin’s Q: Market Value/Replacement Cost

Conclusion

Questions and Short Problems

CHAPTER 20 Revenue Multiples and Sector-Specific Multiples

Revenue Multiples

Sector-Specific Multiples

Conclusion

Questions and Short Problems

CHAPTER 21 Valuing Financial Service Firms

Categories of Financial Service Firms

What is Unique about Financial Service Firms?

General Framework for Valuation

Discounted Cash Flow Valuation

Asset-Based Valuation

Relative Valuation

Issues in Valuing Financial Service Firms

Conclusion

Questions and Short Problems

CHAPTER 22 Valuing Firms with Negative or Abnormal Earnings

Negative Earnings: Consequences and Causes

Valuing Negative Earnings Firms

Conclusion

Questions and Short Problems

CHAPTER 23 Valuing Young or Start-Up Firms

Information Constraints

New Paradigms or Old Principles: A Life Cycle Perspective

Venture Capital Valuation

General Framework for Analysis

Value Drivers

Estimation Noise

Implications for Investors

Implications for Managers

The Expectations Game

Conclusion

Questions and Short Problems

CHAPTER 24 Valuing Private Firms

What Makes Private Firms Different?

Estimating Valuation Inputs at Private Firms

Valuation Motives and Value Estimates

Valuing Venture Capital and Private Equity Stakes

Relative Valuation of Private Businesses

Conclusion

Questions and Short Problems

CHAPTER 25 Aquisitions and Takeovers

Background on Acquisitions

Empirical Evidence on the Value Effects of Takeovers

Steps in an Acquisition

Takeover Valuation: Biases and Common Errors

Structuring the Acquisition

Analyzing Management and Leveraged Buyouts

Conclusion

Questions and Short Problems

CHAPTER 26 Valuing Real Estate

Real versus Financial Assets

Discounted Cash Flow Valuation

Comparable/Relative Valuation

Valuing Real Estate Businesses

Conclusion

Questions and Short Problems

CHAPTER 27 Valuing Other Assets

Cash-Flow-Producing Assets

Non-Cash-Flow-Producing Assets

Assets with Option Characteristics

Conclusion

Questions and Short Problems

CHAPTER 28 The Option to Delay and Valuation Implications

The Option to Delay a Project

Valuing a Patent

Natural Resource Options

Other Applications

Conclusion

Questions and Short Problems

CHAPTER 29 The Options to Expand and to Abandon: Valuation Implications

The Option to Expand

When Are Expansion Options Valuable?

Valuing a Firm with the Option to Expand

Value of Financial Flexibility

The Option to Abandon

Reconciling Net Present Value and Real Option Valuations

Conclusion

Questions and Short Problems

CHAPTER 30 Valuing Equity in Distressed Firms

Equity in Highly Levered Distressed Firms

Implications of Viewing Equity as an Option

Estimating the Value of Equity as an Option

Consequences for Decision Making

Conclusion

Questions and Short Problems

CHAPTER 31 Value Enhancement: A Discounted Cash Flow Valuation Framework

Value-Creating and Value-Neutral Actions

Ways of Increasing Value

Value Enhancement Chain

Closing Thoughts on Value Enhancement

Conclusion

Questions and Short Problems

CHAPTER 32 Value Enhancement: Economic Value Added, Cash Flow Return on Investment, and Other Tools

Economic Value Added

Cash Flow Return on Investment

A Postscript on Value Enhancement

Conclusion

Questions and Short Problems

CHAPTER 33 Probabilistic Approaches in Valuation: Scenario Analysis, Decision Trees, and Simulations

Scenario Analysis

Decision Trees

Simulations

An Overall Assessment of Probabilistic Risk-Assessment Approaches

Conclusion

Questions and Short Problems

CHAPTER 34 Overview and Conclusion

Choices in Valuation Models

Which Approach Should You Use?

Choosing the Right Discounted Cash Flow Model

Choosing the Right Relative Valuation Model

When Should You Use the Option Pricing Models?

Conclusion

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