Praise for Previous Editions
The #1 guide to corporate valuation is back . . . and better than ever!
"The best valuation book just got better. This edition′s greater emphasis on what drives value and how to measure it will improve the way practitioners conduct financial analysis and, ultimately, make strategic decisions. It is required reading for all executives."
Professor Benjamin C. Esty, Harvard Business School, author of Modern Project Finance: A Casebook
"The bible in its field. Anyone wanting to understand what drives corporate value should read this latest edition."
Dr. Raymund Breu, retired Chief Financial Officer, Novartis AG
"A ′how–to′ guide for corporate executives who want to get at the unrealized shareholder values trapped in public companies."
New York Times
"The book′s clarity and comprehensive coverage make it one of the best practitioners′ guides to valuation."
Also available from McKinsey′s suite of Valuation, Sixth Edition products:
Valuation DCF Model Download: is available as a download (978–1–118–87374–8) on [external URL] It is also available via flatpack (978–1–118–87366–3) at online bookstores. This interactive version of McKinsey′s DCF Valuation model allows readers to conduct, with the guidance of McKinsey′s valuation techniques, their own valuation analysis of companies.
Valuation Workbook, Sixth Edition: Part of McKinsey′s esteemed Valuation approach, this companion workbook (978–1–118–87387–8) is a must–have guide to reviewing and applying the valuation concepts and techniques discussed in Valuation, Sixth Edition.
Value: The Four Cornerstones of Corporate Finance (978–0–470–42460–5) offers an executive overview of the core concepts of corporate finance and their ties to value. Intended for managers and students, this accessible guide offers a solid foundation to valuation.
Part One Foundations of Value
1 WhyValueValue? 3
2 Fundamental Principles of Value Creation 17
3 Conservation of Value and the Role of Risk 35
4 The Alchemy of Stock Market Performance 49
5 The Stock Market Is Smarter Than You Think 65
6 Return on Invested Capital 93
7 Growth 115
Part Two Core Valuation Techniques
8 Frameworks for Valuation 135
9 Reorganizing the Financial Statements 165
10 Analyzing Performance 201
11 Forecasting Performance 221
12 Estimating Continuing Value 247
13 Estimating the Cost of Capital 269
14 Moving from Enterprise Value to Value per Share 301
15 Analyzing the Results 321
16 Using Multiples 331
17 Valuation by Parts 353
Part Three Advanced Valuation Techniques
18 Taxes 373
19 Nonoperating Items, Provisions, and Reserves 387
20 Leases and Retirement Obligations 405
21 Alternative Ways to Measure Return on Capital 423
22 Inflation 445
23 Cross–Border Valuation 459
24 Case Study: Heineken 481
Part Four Managing for Value
25 Corporate Portfolio Strategy 525
26 Performance Management 543
27 Mergers and Acquisitions 565
28 Divestitures 593
29 Capital Structure, Dividends, and Share Repurchases 611
30 Investor Communications 643
Part Five Special Situations
31 Emerging Markets 667
32 Valuing High–Growth Companies 691
33 Cyclical Companies 705
34 Banks 713
35 Flexibility 741
Appendix A Discounted Economic Profit Equals Discounted Free Cash Flow 775
Appendix B Derivation of Free Cash Flow, Weighted Average Cost of Capital, and Adjusted Present Value 781
Appendix C Levering and Unlevering the Cost of Equity 787
Appendix D Leverage and the Price–to–Earnings Multiple 795
Appendix E Other Capital Structure Issues 799
Appendix F Technical Issues in Estimating the Market Risk
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.
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 a senior expert 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.