Valuation Techniques: Discounted Cash Flow, Earnings Quality, Measures of Value Added, and Real Options -- Copyright -- Contents -- Foreword -- Introduction -- Part I: Valuation Perspectives: Then and Now -- Chapter 1: Two Illustrative Approaches to Formula Valuations of Common Stocks -- Notes -- Chapter 2: Seeking a Margin of Safety and Valuation -- Two Basic Investment Goals -- The Price of Money is Fake -- The Future is Uncertain -- Dealing with Macro Risk -- Owning an Enterprise Preserves Purchasing Power -- Seek a Margin of Safety -- Valuation -- Business Model Erosion -- Focus on Assets, Not on Residual Equity -- Management -- Flexibility to Look Different -- Conclusion -- Question and Answer Session -- Note -- Part II: Valuation Methodologies -- Chapter 3: Company Performance and Measures of Value Added -- Foreword -- Acknowledgments -- Introduction -- How Value Is Created -- Relating New Performance Methods to Capital-Budgeting Techniques -- Summary -- Traditional Measures of Performance -- Return-on-Investment Ratios -- Tobin's q -- Summary -- Measures of Value Added -- Economic Profit -- Market Value Added -- Reconciling Economic Value Added with Market Value Added -- Challenges in Applying Value-Added Measures -- Holt's Cfroi -- Summary -- Comparison of Alternative Performance Measures -- The Sample -- The Variables -- Empirical Results -- Summary -- Conclusions -- Appendix 3A: The Firm's Cost Of Capital -- Cost of Debt -- Cost of Preferred Stock -- The Cost of Common Equity -- Weighted-Average Cost of Capital -- Issues in Calculating a WACC -- Appendix 3B: Net Present Value and Internal Rate of Return -- Glossary -- Notes -- References -- Chapter 4: The Affordable Dividend Approach to Equity Valuation -- Affordable Dividends -- Affordable vs. Conventional dividends -- Significance of Difference -- Book Value vs. Economic Value weights.

Conclusion -- Notes -- Chapter 5: Discounted-Cash-Flow Approach to Valuation -- The DCF Formula -- Estimation of Cash Flows -- Discount Rate -- Definition -- External Factors -- Internal Factors -- Components -- Terminal Value -- Conclusion -- Question and Answer Section -- Note -- Chapter 6: Equity Securities Analysis Case Study: Merck & Company -- Recent Annual Reports -- Strategic Objectives -- Structural Reorganization -- Position on Health Care Reform -- Outlook for the Future -- Fundamentals of the U.S. Pharmaceutical Industry -- Pricing and the Demand for Pharmaceuticals -- Consolidation and Joint Ventures -- Marketing Trends -- International Competition -- The U.S. Political/Regulatory Environment -- Tasks to be Completed -- Appendix 6A: Merck & Company Financial Data -- Appendix 6B: Statistical Data: Pharmaceutical Industry -- Appendix 6C: Competitive Strategy Analysis Framework -- Appendix 6D: Review of the Dupont Financial Ratio Analysis Method -- Appendix 6E: Selected Valuation Methods -- Single-Stage Constant-Growth DCF Model -- Multistage DCF Model -- H-Model -- Financial Ratios Approaches -- Guideline Answers: The Merck Case -- The Current Issues Involved in Marketing Pharmaceuticals -- The Competitive Structure of the U.S. Pharmaceutical Industry -- Porter's Model and Merck -- Evaluation of Merck's Recent ROE Performance -- Calculate Merck's Intrinsic Value -- Calculate Merck's Intrinsic Value Using a Two-Stage DCF Model -- Intrinsic Value Sensitivity Analysis -- Discussion of Intrinsic Value Sensitivity Analysis -- Calculation of Intrinsic Value Using Merck's P/E and EPS -- Discussion of the Valuation Analysis -- Calculation of Intrinsic Value Using the H-Model -- Sensitivity Analysis of the H-Model -- Analysis of the H-Model Results -- Overall Valuation Opinion and Investment Recommendation -- Observations on Quantitative Factors.

Observations on Qualitative Factors -- Chapter 7: Traditional Equity Valuation Methods -- Purpose -- Shortcuts -- Expectational Models -- Valuation Models -- Traditional Valuation Methods -- P/B -- P/S -- P/E -- DDM -- Screening -- Sector Composition -- Valuation -- ROE Composition -- Growth -- Risk, Expectations, and Performance -- Fundamental Analysis -- Growth and Discount Rates -- Valuation -- Conclusion -- Question and Answer Session -- Chapter 8: A Simple Valuation Model and Growth Expectations -- The Gordon and Gordon Model -- A Simple Finite-Growth Model -- Case 1: All Earnings Reinvested in Positive-NPV Projects -- Case 2: Partial Reinvestment of Earnings in Positive-NPV Projects -- The Model and Market Expectations -- Evaluating the Reasonableness of a P/E -- Overpricing of High-P/E Stocks -- Conclusion -- Appendix 8A: Comparison of New Model with Gordon and Gordon Model -- Acknowledgments -- Notes -- References -- Chapter 9: Franchise Valuation Under Q-Type Competition -- Single-Phase No-Growth Model -- Q-Type Competitive Equilibrium -- A General Decay Model -- The PV-Equivalent ROE -- Basic Two-Phase Growth Model -- Growth-Driven ROE -- Terminal ROEs in Q-Type Competition -- Conclusion -- Notes -- References -- Chapter 10: Value Enhancement and Cash-Driven Valuation Models -- Discounted Cash Flow and Estimates -- Estimation Issues -- Nominal versus Real Valuation -- Cost of Equity -- Value Creation -- Value-Neutral Actions -- Alternative Approaches to Enhancing Value -- Economic Value Added -- EVA Caveats -- Comparing EVA and DCF Valuation -- Conclusion -- Question and Answer Session -- Chapter 11: FEVA: A Financial and Economic Approach to Valuation -- Principle of One Value -- Solving the Circularity Problem -- FEVA -- Conclusion -- Appendix 11A: Derivation of FEVA Formula -- Notes -- References.

Chapter 12: Choosing the Right Valuation Approach -- Equity Valuation in Perspective -- No More New Economy -- Survey of Valuation Techniques -- Market Multiples -- Choosing a Better Comparable -- Two Key Issues -- Defining the Multiple -- Drivers behind the Multiples -- Research Design -- Research Results -- Summary -- Question and Answer Session -- Notes -- Chapter 13: Choosing the Right Valuation Approach -- Defining the Valuation Problem -- Asset/Cost Approaches -- Adjusted Book Value Approach -- Replacement Cost Approach -- Market Approaches -- Guideline Multiples -- Guideline Transactions -- Summary -- Income Approaches -- FCFF Approaches -- FCFE Approach -- DDM Approach -- Contingent Claims Approach: Option Valuation Method -- Conclusion -- Question and Answer Session -- Notes -- Chapter 14: Valuing Illiquid Common Stock -- Value of Liquidity -- Stock Return Volatility -- Measuring Volatility -- Stock Return Volatilities -- Is Volatility Persistent? -- Case Study -- Maximum Discount for Illiquidity -- Determining the Final Discount -- Conclusion -- Notes -- References -- Part III: Earnings and Cash Flow Analysis -- Chapter 15: Earnings: Measurement, Disclosure, and the Impact on Equity Valuation -- Foreword -- Acknowledgments -- Dedication -- Introduction -- Evidence on the Relevance of Earnings to Valuation -- Earnings Information and Equity Prices -- The Information Content of Earnings versus Cash Flows -- Analysts' Use of Earnings in Valuation -- Summary -- The Reporting of Earnings and Equity Valuation -- Free Cash Flow Models or Earnings-Based Models? -- The Classified Income Statement -- Unusual and Nonrecurring Items -- Restructurings -- Discontinued Operations -- Accounting Changes -- Comprehensive Income and Its Components -- Summary -- How Buy-Side Equity Analysts use Earnings in Valuation -- Objectives and Procedures.

Analysis of Stock-Price Estimates -- Insights from the Experiment -- Follow-Up Study -- Summary -- Conclusion -- Notes -- References -- Chapter 16: Cash Flow Analysis and Equity Valuation -- FCF Approach -- Justification for the FCF Approach -- Practical Questions -- Implementation Problems -- Problems with Earnings Focus -- Depreciation and Amortization -- Restructuring Charges -- Gains and Losses -- Research and Development (R&D) Expenditures -- Postemployment Expenses -- FCF Analysis for Stock Valuation -- Estimate Current FCF -- Estimate Anticipated Growth in FCF -- Infer Expected Return on the "Unlevered Firm" -- Calculate Levered r -- Relate Equity-r to Risk -- FCF Example -- Conclusion -- Question and Answer Session -- Chapter 17: Accounting Valuation: Is Earnings Quality an Issue? -- Earnings Measures and Valuation -- Empirical Tests of Earnings Quality -- Value Relevance Method -- Information Content Method -- Predictive Ability Method -- Methods Compared -- Economic Earnings Measures -- Component Data -- Policy Implications -- Notes -- References -- Chapter 18: Earnings Quality Analysis and Equity Valuation -- Why Analyze Earnings Quality? -- Impact of Earnings Surprises -- Defining Earnings Quality -- Simple Accruals Example -- Decomposing Earnings -- Conclusion -- Question and Answer Session -- Chapter 19: Is Cash Flow King in Valuations? -- Multiples-Based Valuation -- Prior U.S. Evidence: Dominance of Earnings -- International Sample -- International Results -- Operating Cash Flows vs. Earnings -- Dividends versus Earnings -- Absolute Valuation Performance of EPS Forecasts -- Conclusion -- Appendix 19A: Variable Definitions -- Earnings Per Share (EPS) -- Operating Cash Flow Per Share (OCPS) -- Dividends Per Share (DPS) -- Notes -- References -- Part IV: Option Valuation -- Chapter 20: Employee Stock Options and Equity Valuation.

Foreword.