Valuation: Measuring and Managing the Value of Companies

Front Cover

McKinsey & Company's #1 best-selling guide to corporate valuation—the fully updated seventh edition

Valuation has been the foremost resource for measuring company value for nearly three decades. Now in its seventh edition, this acclaimed volume continues to help financial professionals around the world gain a deep understanding of valuation and help their companies create, manage, and maximize economic value for their shareholders.

This latest edition has been carefully revised and updated throughout, and includes new insights on topics such as digital, ESG (environmental, social and governance), and long-term investing, as well as fresh case studies.

Clear, accessible chapters cover the fundamental principles of value creation, analyzing and forecasting performance, capital structure and dividends, valuing high-growth companies, and much more. The Financial Times calls the book “one of the practitioners’ best guides to valuation.”

This book:

  • Provides complete, detailed guidance on every crucial aspect of corporate valuation
  • Explains the strategies, techniques, and nuances of valuation every manager needs to know
  • Covers both core and advanced valuation techniques and management strategies
  • Features/Includes a companion website that covers key issues in valuation, including videos, discussions of trending topics, and real-world valuation examples from the capital markets

For over 90 years, McKinsey & Company has helped corporations and organizations make substantial and lasting improvements in their performance. Through seven editions and 30 years, Valuation: Measuring and Managing the Value of Companies, has served as the definitive reference for finance professionals, including investment bankers, financial analysts, CFOs and corporate managers, venture capitalists, and students and instructors in all areas of finance.

 

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Contents

Why Value Value?
3
Finance in a Nutshell
17
Fundamental Principles of Value Creation
27
Risk and the Cost of Capital
55
The Alchemy of Stock Market Performance
69
Valuation of ESG and Digital Initiatives
83
The Stock Market Is Smarter Than You Think
99
Return on Invested Capital
127
Measuring Performance in CapitalLight Businesses
467
Alternative Ways to Measure Return on Capital
483
Inflation
493
CrossBorder Valuation
507
Part Four Managing for Value
525
Corporate Portfolio Strategy
527
Analytics
547
Mindsets and Behaviors
571

Growth
155
Part Two Core Valuation Techniques
175
Frameworks for Valuation
177
Reorganizing the Financial Statements
205
Analyzing Performance
239
Forecasting Performance
259
Estimating Continuing Value
285
Estimating the Cost of Capital
305
Moving from Enterprise Value to Value per Share
335
Analyzing the Results
357
Using Multiples
367
Valuation by Parts
391
Part Three Advanced Valuation Techniques
411
Taxes
413
Nonoperating Items Provisions and Reserves
427
Leases
443
Retirement Obligations
457
Mergers and Acquisitions
585
Divestitures
613
Capital Structure Dividends and Share Repurchases
633
Investor Communications
667
Part Five Special Situations
689
Emerging Markets
691
HighGrowth Companies
709
Cyclical Companies
725
Banks
733
Flexibility
759
Appendix A Discounted Economic Profit Equals Discounted Free
793
Appendix B Derivation of Free Cash Flow Weighted Average Cost
799
Levering and Unlevering the Cost of Equity
805
Leverage and the PricetoEarnings Multiple
813
Appendix F Technical Issues in Estimating the Market Risk
823
Appendix H A Valuation of Costco Wholesale
835
TwoStage Formula for Continuing Value
859

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About the author (2020)

TIM KOLLER is a partner in McKinsey's Stamford, Connecticut office, where he leads a global team of corporate-finance expert consultants. Tim has served clients globally on corporate strategy and capital markets, mergers and acquisitions transactions, and strategic planning and resource allocation.

MARC GOEDHART is a senior expert in McKinsey's Amsterdam office and 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. He was named by Bloomberg Businessweek as one of America's top business school instructors.

MCKINSEY & COMPANY is a global management-consulting firm that serves leading global organizations across a wide range of industries and functions, helping them create change that matters.

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