Valuation Workbook: Step-by-Step Exercises

The Ideal Companion to VALUATION FOURTH EDITION If you want to get more out of Valuation, Fourth Edition, then pick up the Valuation Workbook. This comprehensive study guide provides you with an invaluable opportunity to explore your understanding of the strategies and techniques covered in the main text, before putting it to work in real-world situations. This hands-on Workbook: * Walks you through Valuation, Fourth Edition--providing chapter-by-chapter coverage of the core text * Tests your comprehension of the ideas presented throughout, with multiple-choice questions and problems * Offers complete coverage of forecasting short, medium, and continuing value; calculating and interpreting results; real option pricing methods; and much more Valuation Workbook is filled with a wealth of practical learning exercises and information that will help you understand and apply the proven principles found in Valuation, Fourth Edition.

McKINSEY & COMPANY is a management consulting firm that helps leading corporations and organizations make distinctive, lasting, and substantial improvements in their performance. Over the past seven decades, the firm's primary objective has remained constant: to serve as an organization's most trusted external advisor on critical issues facing senior management. With consultants deployed from over eighty offices in more than forty countries, McKinsey advises companies on strategic, operational, organizational, financial, and technological issues. The firm has extensive experience in all major industry sectors and primary functional areas, as well as in-depth expertise in high-priority areas for today's business leaders.

Tim Koller is a partner in McKinsey's New York office. Tim has served clients in North America and Europe on corporate strategy and issues concerning capital markets, M&A transactions, and value-based management. He leads the firm's research activities in valuation and capital markets issues. He received his MBA from the University of Chicago.

Marc Goedhart is an associate principal in McKinsey's Amsterdam office. Marc has served clients across Europe on portfolio restructuring, issues concerning capital markets, and M&A transactions. He received a PhD in finance from Erasmus University Rotterdam.

David Wessels is an Adjunct Professor of Finance and director of executive education at the Wharton School of the University of Pennsylvania. Named by BusinessWeek as one of America's top business school instructors, he teaches corporate valuation at the MBA and Executive MBA levels. David received his PhD from the University of California at Los Angeles.

Jeffrey P. Lessard, CFA, is Associate Professor of Finance and Accounting at the Rochester Institute of Technology. Dr. Lessard received his PhD in finance from the Sam M. Walton College of Business at the University of Arkansas. His primary scholarly interests are in the areas of corporate valuation, the influence of the board of directors on the creation of shareholder value, portfolio performance, and performance and presentation standards in the investment industry.

Introduction

ix

Part One Questions

Why Maximize Value?

3

(3)

The Value Manager

6

(4)

Fundamental Principles of Value Creation

10

(3)

Do Fundamentals Really Drive the Stock Market?

13

(2)

Frameworks for Valuation

15

(3)

Thinking-about Return on Invested Capital and Growth

18

(1)

Analyzing Historical Performance

19

(6)

Forecasting Performance

25

(3)

Estimating Continuing Value

28

(7)

Estimating the Cost of Capital

35

(4)

Calculating and Interpreting Results

39

(2)

Using Multiples for Valuation

41

(2)

Performance Measurement

43

(2)

Performance Management

45

(3)

Creating Value through Mergers and Acquisitions

48

(3)

Creating Value through Divestitures

51

(2)

Capital Structure

53

(2)

Investor Communications

55

(2)

Valuing Multibusiness Companies

57

(2)

Valuing Flexibility

59

(2)

Cross-Border Valuation

61

(2)

Valuation in Emerging Markets

63

(7)

Valuing High-Growth Companies

70

(2)

Valuing Cyclical Companies

72

(9)

Valuing Financial Institutions

81

(10)

Part Two Answers

Why Maximize Value?

91

(2)

The Value Manager

93

(4)

Fundamental Principles of Value Creation

97

(2)

Do Fundamentals Really Drive the Stock Market?

99

(3)

Frameworks-for Valuation

102

(4)

Thinking about Return on Invested Capital and Growth

106

(1)

Analyzing Historical Performance

107

(8)

Forecasting Performance

115

(7)

Estimating Continuing Value

122

(9)

Estimating the Cost of Capital

131

(3)

Calculating and Interpreting Results

134

(2)

Using Multiples for Valuation

136

(2)

Performance Measurement

138

(2)

Performance Management

140

(3)

Creating Value through Mergers and Acquisitions

143

(3)

Creating Value through Divestitures

146

(3)

Capital Structure

149

(3)

Investor Communications

152

(2)

Valuing Multibusiness Companies

154

(2)

Valuing Flexibility

156

(2)

Cross-Border Valuation

158

(2)

Valuation in Emerging Markets

160

(8)

Valuing High-Growth Companies

168

(2)

Valuing Cyclical Companies

170

(9)

Valuing Financial Institutions

179

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Valuation Workbook: Step-by-Step Exercises and Tests to Help You Master Valuation, 4th Edition

Summary

Author Biography

Table of Contents

Supplemental Materials