About the Authors ix Preface xi Acknowledgments xv Part One Foundations of Value 1 Why Value Value? 3 2 Finance in a Nutshell 17 3 Fundamental Principles of Value Creation 27 4 Risk and the Cost of Capital 55 5 The Alchemy of Stock Market Performance 69 6 Valuation of ESG and Digital Initiatives 83 7 The Stock Market is Smarter Than You Think 99 8 Return on Invested Capital 127 9 Growth 155 Part Two Core Valuation Techniques 10 Frameworks for Valuation 177 11 Reorganizing the Financial Statements 205 12 Analyzing Performance 239 13 Forecasting Performance 259 14 Estimating Continuing Value 285 15 Estimating the Cost of Capital 305 16 Moving from Enterprise Value to Value per Share 335 17 Analyzing the Results 357 18 Using Multiples 367 19 Valuation by Parts 391 Part Three Advanced Valuation Techniques 20 Taxes 413 21 Nonoperating Items, Provisions, and Reserves 427 22 Leases 443 23 Retirement Obligations 457 24 Measuring Performance in Capital-Light Businesses 467 25 Alternative Ways to Measure Return on Capital 483 26 Inflation 493 27 Cross-Border Valuation 507 Part Four Managing for Value 28 Corporate Portfolio Strategy 527 29 Strategic Management: Analytics 547 30 Strategic Management: Mindsets and Behaviors 571 31 Mergers and Acquisitions 585 32 Divestitures 613 33 Capital Structure, Dividends, and Share Repurchases 633 34 Investor Communications 667 Part Five Special Situations 35 Emerging Markets 691 36 High-Growth Companies 709 37 Cyclical Companies 725 38 Banks 733 39 Flexibility 759 Appendix A Discounted Economic Profit Equals Discounted Free Cash Flow 793 Appendix B Derivation of Free Cash Flow, Weighted Average Cost of Capital, and Adjusted Present Value 799 Appendix C Levering and Unlevering the Cost of Equity 805 Appendix D Leverage and the Price-to-Earnings Multiple 813 Appendix E Other Capital Structure Issues 817 Appendix F Technical Issues in Estimating the Market Risk Premium 823 Appendix G Global, International, and Local CAPM 827 Appendix H A Valuation of Costco Wholesale 835 Appendix I Two-Stage Formula for Continuing Value 859 Index 861 

McKinsey & Company's #1 bestselling guide to corporate valuation, now in its Seventh Edition The revised Seventh Edition of Valuation offers detailed, step-by-step explanations of how to easily and effectively measure and manage the value of companies. This book contains proven valuation frameworks that have been used successfully in McKinsey & Company's consulting work, including illustrative case studies that put the spotlight on practical judgments involved in developing and using valuations. PRAISE FOR VALUATION "The book's clarity and comprehensive coverage make it one of the best practitioners' guides to valuation." —Financial Times "Valuation . . . is a reminder of why shareholder value is still the most powerful idea in business and why many criticisms thrown at it are unfair." —The Economist "A 'how to' guide for corporate executives who want to get at the unrealized shareholder values trapped in public companies." —The New York Times "Cuts through the clutter and confusion to focus executives on what really drives value creation." —Fernando Tennenbaum, CFO, AB InBev "Clearly articulates both the principles and practical applications of creating value." —John Graham, D. Richard Mead Professor of Finance, Fuqua School of Business, Duke University "The best valuation book just got better. It is required reading for all executives." —Benjamin C. Esty, Roy and Elizabeth Simmons Professor of Business Administration, Harvard Business School "The bible in its field. Anyone wanting to understand what drives corporate value should read this latest edition." —Dr. Raymond Breu, retired CFO, Novartis AG