Valuation

TIM KOLLER is a partner in McKinsey's Stamford, Connecticut office, where he leads a global team of corporate-finance expert consultants. MARC GOEDHART is a senior expert in McKinsey's Amsterdam office and an endowed professor of corporate valuation at Rotterdam School of Management, Erasmus University (RSM). DAVID WESSELS is an adjunct professor of finance at the Wharton School of the University of Pennsylvania.

• About the Authors ixPreface xiAcknowledgments xvPart One Foundations of Value1 Why Value Value? 3Review Questions 162 Finance in a Nutshell 17Review Questions 263 Fundamental Principles of Value Creation 27Review Questions 544 Risk and the Cost of Capital 55Review Questions 685 The Alchemy of Stock Market Performance 69Review Questions 836 Valuation of ESG and Digital Initiatives 85Review Questions 1007 The Stock Market Is Smarter Than You Think 101Review Questions 1298 Return on Invested Capital 131Review Questions 1589 Growth 159Review Questions 178Part Two Core Valuation Techniques10 Frameworks for Valuation 181Review Questions 20911 Reorganizing the Financial Statements 211Review Questions 24512 Analyzing Performance 247Review Questions 26713 Forecasting Performance 269Review Questions 29514 Estimating Continuing Value 299Review Questions 31815 Estimating the Cost of Capital 321Review Questions 35016 Moving from Enterprise Value to Value per Share 353Review Questions 37417 Analyzing the Results 377Review Questions 38718 Using Multiples 389Review Questions 41219 Valuation by Parts 415Review Questions 434Part Three Advanced Valuation Techniques20 Taxes 439Review Questions 45321 Nonoperating Items, Provisions, and Reserves 455Review Questions 47122 Leases 473Review Questions 48623 Retirement Obligations 489Review Questions 49824 Measuring Performance in Capital-Light Businesses 499Review Questions 51425 Alternative Ways to Measure Return on Capital 515Review Questions 52426 Inflation 525Review Questions 53927 Cross-Border Valuation 541Review Questions 559Part Four Managing for Value28 Corporate Portfolio Strategy 563Review Questions 58329 Strategic Management: Analytics 585Review Questions 60830 Strategic Management: Mindsets and Behaviors 609Review Questions 62331 Mergers and Acquisitions 625              Review Questions 65332 Divestitures 655Review Questions 67433 Capital Structure, Dividends, and Share Repurchases 675Review Questions 70834 Investor Communications 709Review Questions 731Part Five Special Situations35 Emerging Markets 735Review Questions 75236 High-Growth Companies 753Review Questions 76837 Cyclical Companies 769Review Questions 77738 Banks 779Review Questions 80539 Flexibility 807Review Questions 841Appendix A Discounted Economic Profit Equals Discounted Free Cash Flow 843Appendix B Derivation of Free Cash Flow, Weighted Average Cost of Capital, and Adjusted Present Value 849Appendix C Levering and Unlevering the Cost of Equity 855Appendix D Leverage and the Price-to-Earnings Multiple 863Appendix E Other Capital Structure Issues 867Appendix F Technical Issues in Estimating the Market Risk Premium 873Appendix G Global, International, and Local CAPM 877Appendix H A Valuation of Costco Wholesale 885Appendix I Two-Stage Formula for Continuing Value 909Index 911