About the Authors ix Preface xi Acknowledgments xv Part One Foundations of Value 1 Why Value Value? 3 Review Questions 16 2 Finance in a Nutshell 17 Review Questions 26 3 Fundamental Principles of Value Creation 27 Review Questions 54 4 Risk and the Cost of Capital 55 Review Questions 68 5 The Alchemy of Stock Market Performance 69 Review Questions 83 6 Valuation of ESG and Digital Initiatives 85 Review Questions 100 7 The Stock Market Is Smarter Than You Think 101 Review Questions 129 8 Return on Invested Capital 131 Review Questions 158 9 Growth 159 Review Questions 178 Part Two Core Valuation Techniques 10 Frameworks for Valuation 181 Review Questions 209 11 Reorganizing the Financial Statements 211 Review Questions 245 12 Analyzing Performance 247 Review Questions 267 13 Forecasting Performance 269 Review Questions 295 14 Estimating Continuing Value 299 Review Questions 318 15 Estimating the Cost of Capital 321 Review Questions 350 16 Moving from Enterprise Value to Value per Share 353 Review Questions 374 17 Analyzing the Results 377 Review Questions 387 18 Using Multiples 389 Review Questions 412 19 Valuation by Parts 415 Review Questions 434 Part Three Advanced Valuation Techniques 20 Taxes 439 Review Questions 453 21 Nonoperating Items, Provisions, and Reserves 455 Review Questions 471 22 Leases 473 Review Questions 486 23 Retirement Obligations 489 Review Questions 498 24 Measuring Performance in Capital-Light Businesses 499 Review Questions 514 25 Alternative Ways to Measure Return on Capital 515 Review Questions 524 26 Inflation 525 Review Questions 539 27 Cross-Border Valuation 541 Review Questions 559 Part Four Managing for Value 28 Corporate Portfolio Strategy 563 Review Questions 583 29 Strategic Management: Analytics 585 Review Questions 608 30 Strategic Management: Mindsets and Behaviors 609 Review Questions 623 31 Mergers and Acquisitions 625               Review Questions 653 32 Divestitures 655 Review Questions 674 33 Capital Structure, Dividends, and Share Repurchases 675 Review Questions 708 34 Investor Communications 709 Review Questions 731 Part Five Special Situations 35 Emerging Markets 735 Review Questions 752 36 High-Growth Companies 753 Review Questions 768 37 Cyclical Companies 769 Review Questions 777 38 Banks 779 Review Questions 805 39 Flexibility 807 Review Questions 841 Appendix A Discounted Economic Profit Equals Discounted Free Cash Flow 843 Appendix B Derivation of Free Cash Flow, Weighted Average Cost of Capital, and Adjusted Present Value 849 Appendix C Levering and Unlevering the Cost of Equity 855 Appendix D Leverage and the Price-to-Earnings Multiple 863 Appendix E Other Capital Structure Issues 867 Appendix F Technical Issues in Estimating the Market Risk Premium 873 Appendix G Global, International, and Local CAPM 877 Appendix H A Valuation of Costco Wholesale 885 Appendix I Two-Stage Formula for Continuing Value 909 Index 911

FOR THIRTY YEARS McKINSEY HAS BEEN A TRUSTED GUIDE TO TEACHING CORPORATE VALUATION Valuation, University Edition, Seventh Edition contains the expert guidance from McKinsey & Company that students and professors have come to rely on. New to the fully revised and updated Seventh Edition: New case studies that clearly illustrate both the economics of value creation and the process of measuring valueClarifies the distinction between creating shareholder value and maximizing short-term profitsExplores in greater depth the factors that drive long-term value creation For thirty years Valuation has remained true to its basic principles and continues to offer a step-by-step approach to valuation, including: Analyzing historical performanceForecasting performanceEstimating the cost of capital with practical tipsInterpreting the results of a valuation in light of a company's situationLinking a company's valuation multiples to the core drivers of its performance The University Edition contains End-of-Chapter Review Questions that help students master key concepts from each chapter. Wiley also offers an Online Instructor's Manual with a full suite of learning resources for professors and students. McKINSEY & COMPANY is a global management-consulting firm that serves across a wide range of industries and functions.