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Investment Valuation

Tools and Techniques for Determining the Value of Any Asset

Wiley Finance Editions Band 666

Aswath Damodaran

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The definitive source of information on all topics related to investment valuation tools and techniques
Valuation is at the heart of any investment decision, whether that decision is buy, sell or hold. But the pricing of many assets has become a more complex task in modern markets, especially after the recent financial crisis. In order to be successful at this endeavor, you must have a firm understanding of the proper valuation techniques. One valuation book stands out as withstanding the test of time among investors and students of financial markets, Aswath Damodaran'sInvestment Valuation.
Now completely revised and updated to reflect changing market conditions, this third edition comprehensively introduces investment professionals and students to the range of valuation models available and how to chose the right model for any given asset valuation scenario. This edition includes valuation techniques for a whole host of real options, start-up firms, unconventional assets, distressed companies and private equity, and real estate. All examples have been updated and new material has been added.
* Fully revised to incorporate valuation lessons learned from the last five years, from the market crisis and emerging markets to new types of equity investments
* Includes valuation practices across the life cycle of companies and emphasizes value enhancement measures, such as EVA and CFROI
* Contains a new chapter on probabilistic valuation techniques such as decision trees and Monte Carlo Simulation
* Author Aswath Damodaran is regarded as one of the best educators and thinkers on the topic of investment valuation
This indispensable guide is a must read for anyone wishing to gain a better understanding of investment valuation and its methods. With it, you can take the insights and advice of a recognized authority on the valuation process and immediately put them to work for you.

ASWATH DAMODARAN is Professor of Finance at New York University's Leonard N. Stern School of Business. He has been the recipient of numerous awards for outstanding teaching, including the NYU university-wide Distinguished Teaching Award, and was named one of the nation's top business school teachers by BusinessWeek in 1994. In addition, Damodaran teaches training courses in corporate finance and valuation at many leading investment banks. His publications include Damodaran on Valuation: Security Analysis for Investment and Corporate Finance; Investment Valuation; Corporate Finance; Investment Management; and Applied Corporate Finance, all published by Wiley, and The Dark Side of Valuation.


Einband gebundene Ausgabe
Seitenzahl 992
Erscheinungsdatum 20.04.2012
Sprache Englisch
ISBN 978-1-118-01152-2
Verlag John Wiley & Sons, Inc.
Maße (L/B/H) 26.2/19.2/5 cm
Gewicht 1680 g
Auflage 3. Auflage

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  • CHAPTER 1 Introduction to Valuation 1

    A Philosophical Basis for Valuation 1

    Generalities about Valuation 2

    The Role of Valuation 6

    Conclusion 9

    Questions and Short Problems 9

    CHAPTER 2 Approaches to Valuation 11

    Discounted Cash Flow Valuation 11

    Relative Valuation 19

    Contingent Claim Valuation 23

    Conclusion 25

    Questions and Short Problems 25

    CHAPTER 3 Understanding Financial Statements 27

    The Basic Accounting Statements 27

    Asset Measurement and Valuation 29

    Measuring Financing Mix 36

    Measuring Earnings and Profitability 42

    Measuring Risk 47

    Other Issues in Analyzing Financial Statements 53

    Conclusion 55

    Questions and Short Problems 55

    CHAPTER 4 The Basics of Risk 58

    What is Risk? 58

    Equity Risk and Expected Return 59

    Alternative Models for Equity Risk 71

    A Comparative Analysis of Equity Risk Models 76

    Models of Default Risk 77

    Conclusion 81

    Questions and Short Problems 82

    CHAPTER 5 Option Pricing Theory and Models 87

    Basics of Option Pricing 87

    Determinants of Option Value 89

    Option Pricing Models 90

    Extensions of Option Pricing 107

    Conclusion 109

    Questions and Short Problems 109

    CHAPTER 6 Market Efficiency--Definition, Tests, and Evidence 111

    Market Efficiency and Investment Valuation 111

    What Is an Efficient Market? 112

    Implications of Market Efficiency 112

    Necessary Conditions for Market Efficiency 114

    Propositions about Market Efficiency 114

    Testing Market Efficiency 116

    Cardinal Sins in Testing Market Efficiency 120

    Some Lesser Sins That Can Be a Problem 121

    Evidence on Market Efficiency 122

    Time Series Properties of Price Changes 122

    Market Reaction to Information Events 130

    Market Anomalies 134

    Evidence on Insiders and Investment Professionals 142

    Conclusion 149

    Questions and Short Problems 150

    CHAPTER 7 Riskless Rates and Risk Premiums 154

    The Risk-Free Rate 154

    Equity Risk Premium 159

    Default Spreads on Bonds 177

    Conclusion 180

    Questions and Short Problems 180

    CHAPTER 8 Estimating Risk Parameters and Costs of Financing 182

    The Cost of Equity and Capital 182

    Cost of Equity 183

    From Cost of Equity to Cost of Capital 210

    Best Practices at Firms 221

    Conclusion 222

    Questions and Short Problems 223

    CHAPTER 9 Measuring Earnings 229

    Accounting versus Financial Balance Sheets 229

    Adjusting Earnings 230

    Conclusion 247

    Questions and Short Problems 249

    CHAPTER 10 From Earnings to Cash Flows 250

    The Tax Effect 250

    Reinvestment Needs 258

    Conclusion 268

    Questions and Short Problems 269

    CHAPTER 11 Estimating Growth 271

    The Importance of Growth 272

    Historical Growth 272

    Analyst Estimates of Growth 282

    Fundamental Determinants of Growth 285

    Qualitative Aspects of Growth 301

    Conclusion 302

    Questions and Short Problems 302

    CHAPTER 12 Closure in Valuation: Estimating Terminal Value 304

    Closure in Valuation 304

    The Survival Issue 318

    Closing Thoughts on Terminal Value 320

    Conclusion 321

    Questions and Short Problems 321

    CHAPTER 13 Dividend Discount Models 323

    The General Model 323

    Versions of the Model 324

    Issues in Using the Dividend Discount Model 344

    Tests of the Dividend Discount Model 345

    Conclusion 348

    Questions and Short Problems 349

    CHAPTER 14 Free Cash Flow to Equity Discount Models 351

    Measuring What Firms Can Return to Their Stockholders 351

    FCFE Valuation Models 357

    FCFE Valuation versus Dividend Discount Model Valuation 372

    Conclusion 376

    Questions and Short Problems 376

    CHAPTER 15 Firm Valuation: Cost of Capital and Adjusted Present Value Approaches 380

    Free Cash flow to the Firm 380

    Firm Valuation: The Cost of Capital Approach 383

    Firm Valuation: The Adjusted Present Value Approach 398

    Effect of Leverage on Firm Value 402

    Adjusted Present Value and Financial Leverage 415

    Conclusion 419

    Questions and Short Problems 419

    CHAPTER 16 Estimating Equity Value per Share 423

    Value of Nonoperating Assets 423

    Firm Value and Equity Value 440

    Management and Employee Options 442

    Value per Share When Voting Rights Vary 448

    Conclusion 450

    Questions and Short Problems 451

    CHAPTER 17 Fundamental Principles of Relative Valuation 453

    Use of Relative Valuation 453

    Standardized Values and Multiples 454

    Four Basic Steps to Using Multiples 456

    Reconciling Relative and Discounted Cash Flow Valuations 466

    Conclusion 467

    Questions and Short Problems 467

    CHAPTER 18 Earnings Multiples 468

    Price-Earnings Ratio 468

    The PEG Ratio 487

    Other Variants on the PE Ratio 497

    Enterprise Value to EBITDA Multiple 500

    Conclusion 508

    Questions and Short Problems 508

    CHAPTER 19 Book Value Multiples 511

    Price-to-Book Equity 511

    Applications of Price-Book Value Ratios 521

    Use in Investment Strategies 530

    Value-to-Book Ratios 532

    Tobin's Q: Market Value/Replacement Cost 537

    Conclusion 539

    Questions and Short Problems 539

    CHAPTER 20 Revenue Multiples and Sector-Specific Multiples 542

    Revenue Multiples 542

    Sector-Specific Multiples 571

    Conclusion 577

    Questions and Short Problems 577

    CHAPTER 21 Valuing Financial Service Firms 581

    Categories of Financial Service Firms 581

    What is Unique about Financial Service Firms? 582

    General Framework for Valuation 583

    Discounted Cash Flow Valuation 584

    Asset-Based Valuation 599

    Relative Valuation 599

    Issues in Valuing Financial Service Firms 605

    Conclusion 607

    Questions and Short Problems 608

    CHAPTER 22 Valuing Firms with Negative or Abnormal Earnings 611

    Negative Earnings: Consequences and Causes 611

    Valuing Negative Earnings Firms 615

    Conclusion 639

    Questions and Short Problems 639

    CHAPTER 23 Valuing Young or Start-Up Firms 643

    Information Constraints 643

    New Paradigms or Old Principles: A Life Cycle Perspective 644

    Venture Capital Valuation 646

    General Framework for Analysis 648

    Value Drivers 659

    Estimation Noise 661

    Implications for Investors 662

    Implications for Managers 663

    The Expectations Game 663

    Conclusion 665

    Questions and Short Problems 666

    CHAPTER 24 Valuing Private Firms 667

    What Makes Private Firms Different? 667

    Estimating Valuation Inputs at Private Firms 668

    Valuation Motives and Value Estimates 688

    Valuing Venture Capital and Private Equity Stakes 693

    Relative Valuation of Private Businesses 695

    Conclusion 699

    Questions and Short Problems 699

    CHAPTER 25 Aquisitions and Takeovers 702

    Background on Acquisitions 702

    Empirical Evidence on the Value Effects of Takeovers 705

    Steps in an Acquisition 705

    Takeover Valuation: Biases and Common Errors 724

    Structuring the Acquisition 725

    Analyzing Management and Leveraged Buyouts 730

    Conclusion 734

    Questions and Short Problems 735

    CHAPTER 26 Valuing Real Estate 739

    Real versus Financial Assets 739

    Discounted Cash Flow Valuation 740

    Comparable/Relative Valuation 759

    Valuing Real Estate Businesses 761

    Conclusion 763

    Questions and Short Problems 763

    CHAPTER 27 Valuing Other Assets 766

    Cash-Flow-Producing Assets 766

    Non-Cash-Flow-Producing Assets 775

    Assets with Option Characteristics 777

    Conclusion 778

    Questions and Short Problems 779

    CHAPTER 28 The Option to Delay and Valuation Implications 781

    The Option to Delay a Project 781

    Valuing a Patent 789

    Natural Resource Options 796

    Other Applications 802

    Conclusion 802

    Questions and Short Problems 803

    CHAPTER 29 The Options to Expand and to Abandon: Valuation Implications 805

    The Option to Expand 805

    When Are Expansion Options Valuable? 812

    Valuing a Firm with the Option to Expand 815

    Value of Financial Flexibility 817

    The Option to Abandon 820

    Reconciling Net Present Value and Real Option Valuations 823

    Conclusion 823

    Questions and Short Problems 824

    CHAPTER 30 Valuing Equity in Distressed Firms 826

    Equity in Highly Levered Distressed Firms 826

    Implications of Viewing Equity as an Option 828

    Estimating the Value of Equity as an Option 831

    Consequences for Decision Making 836

    Conclusion 839

    Questions and Short Problems 839

    CHAPTER 31 Value Enhancement: A Discounted Cash Flow Valuation Framework 841

    Value-Creating and Value-Neutral Actions 841

    Ways of Increasing Value 842

    Value Enhancement Chain 859

    Closing Thoughts on Value Enhancement 864

    Conclusion 865

    Questions and Short Problems 865

    CHAPTER 32 Value Enhancement: Economic Value Added, Cash Flow Return on Investment, and Other Tools 869

    Economic Value Added 870

    Cash Flow Return on Investment 884

    A Postscript on Value Enhancement 890

    Conclusion 891

    Questions and Short Problems 891

    CHAPTER 33 Probabilistic Approaches in Valuation: Scenario Analysis, Decision Trees, and Simulations 894

    Scenario Analysis 894

    Decision Trees 899

    Simulations 908

    An Overall Assessment of Probabilistic Risk-Assessment Approaches 919

    Conclusion 921

    Questions and Short Problems 921

    CHAPTER 34 Overview and Conclusion 925

    Choices in Valuation Models 925

    Which Approach Should You Use? 926

    Choosing the Right Discounted Cash Flow Model 929

    Choosing the Right Relative Valuation Model 933

    When Should You Use the Option Pricing Models? 937

    Conclusion 938

    References 939

    Index 954