Business-valuation

The Pros:

Damodaran is a gifted teacher and in his books is able as well to explain the concepts and techniques of valuation in an understandable manner. The book serves mainly for readers who want to get a comprehensible (and to a certain degree comprehensive) overview of the topics with selected in-depth discussions and it is quite 'readable'.

The Cons:

The book is not new at all, as about 90% is a copy of his earlier book 'Investment Valuation'. The only real difference is the selection of the examples used and the financial and market data are more current compared to his other book from 1994. It seems that the marketing department of the publisher saw an opportunity to sell a 'new' book to the new class of technology investors. However, the occasional comments of which valuation topics are specific to technology companies could be summarized on a couple of pages.
The book is good for giving a comprehensible overview but does not go very much into depth.
Effectively, it's the earlier book 'Investment Valuation' recycled with a new title and new cover, still a good book but not new at all.

Do you need to understand the basic fundamentals of valuation? Then this is the book you need. This book will take you through step by step on how to value a company and the assumptions you need to make. By far, this book is much easier to read and understand than the book "Valuation," written by couple of Mckinsey consultants.

Although much of the organization and explanation of valuation techniques presented here repeats the presentation in Damodaran's previous books, he does two things which make this the better book than the previous books: 1) he discusses the role of "tech" companies in our economy and he selects 5 specific companies which serve as his examples in every chapter and 2) he makes reference to excel spreadsheets (available for free download on his web page) which he has prepared to allow readers to apply what they are learning immediately and with a minimum of set-up time. As tech companies play a larger and larger part in our economy, the specific quirks and issues related to the operation of tech businesses and the impact of those industry-specific issues on the valuation process become more important for us. One might argue that all companies, whether they are wine makers or processor makers, face industry-specific valuation issues which do not affect companies in other industries, and in light of that, many issues discussed here might not be relevant to the wine makers. But tech is so important to us now that we can no longer afford to use generic, non-tech specific techniques in the face of an increasingly tech-heavy stock market.

As for the reviewer who compained that Damodaran doesn't do enough work in real option theory: Damodaran says in this book exactly what needs to be said about real option theory: that it has very limited applications (which is not to say that it is not revolutionary within those limited applications) and that the push to broaden the use of real option valuation beyond its traditional applications can more often than not constitute misuse and abuse of the models. Not every investment contains options, and not all of those options have value, to paraphrase Damodaran himself. Damodaran doesn't ignore real options, of course: he calls them contingency claims (as they technically should be called) and dedicates a chapter to explaining there use and abuse. Using real options, when it comes down to it, involves building and solving partial differential equations based on stochastic processes. As any actuary or financial analyst could confirm, teaching stochastic processes presupposes a very strong math base and still would require an entire book. Damodaran did the right thing by limiting himself to a single, illustrative chapter.

The best part of this book is that thanks to Damodaran's congenial and accessible ability to write, this book can be read and prove valuable to people with a variety of needs. As an MBA student this book has been invaluable. But I even gave this book as a gift to my brother, a decidedly non-financial person, to replace his countless "How to Invest" books sitting on his bookshelf.

I recently finished your book "Deal Terms" and found it extremely
helpful as we are looking into our first round of financing.

This book showed me numerous issues that I would have definitely overlooked or simply not thought of.
 
Thanks for writing Deal Terms. Definitely an invaluable
reference for anyone in business!

This book has a few sample drafts of term sheets and other legal documents. That is not the primary focus of this book. You can hire that kind of talent (legal drafting) on a per hour basis. This book helps the owners make the BUSINESS decisions necessary to avoid hamstring their new venture during this difficult passage. Included is information about what to pay your independent directors, advisory board members and senior management. Also included is what percentage of the company the founders should expect to keep, how to avoid excessive dilution during an unfortunate down round and how to present your opportunity to potential investors. All of these BUSINESS decisions are beyond the discretion of attorneys in this area, they typically instruct the entrepreneur to reflect upon the topic and then the attorney will draft it to suit.

Wilmerding interviews individuals that are representative of players an entrepreneur will encounter in getting his business funded. These real world examples of how business (strategy) items are handled or viewed by third parties are the best part of his book.

As a corporate attorney specializing in the area of venture capital and private equity I just completed reading "Deal Terms." I found the book to be insightful and a good resource, particularly in areas that are outside of my traditional bailiwick as a lawyer. A recommend this book for those new to the venture capital area as well as experienced investors, entrepreneurs and professionals.

It is an impressive work done by Damodaran. to learn how to value a company becomes much more easier with this book. But the samples could be somewhat more complex and sophisticated. This guide is an ultimate guide for them who begin to learn the valuation topic. Professional should also trace it.

As everyone will agree, this is a good book in valuation tools. With different version of the DCF models, this book is one of the ideal desk reference of security analysis. However, if you also look at the book "Investment Valuation" by Professor Damodaran, you will agree that this one is only a short version of "Investment Valuation". Almost every topic is covered (or copied) from "Investment Valuation".
I gave "Investment Valuation" a 5-star rating. So, for its short version, I give 4-star.

The book is mainly aimed at valuation practitioners and MBA sudents. The book deals with 3 valuation techniques- DCF, relative valuation (based on PE, P/BV, PS multiples) and contingent claims (options). Great insights into determining key variables (PE, PS, P/BV) based on business fundamentals and pro and cons of using each approach. However, the book does not go into enough depth in CAPM and APT. The author assumes that the reader would have a fair idea about financial ratios, fundamentals etc. The best part of the book deals with valuation of special cases like cyclical firms, brands etc. and how corporate restructuring affects value. It also provides great insights into valuation for takeovers and mergers. The author provides a usable framework for valuing intangibles in an acquisition target- what the different sources of synergy are and how to value each in a lucid framework. Overall, a good book to gain a firm footing in investment valuation techniques.

This is an excellent book. It serves as both a course in valuation as well as a useful reference tool.

The book is heavily weighted to discounted cash flow analysis, though it also discusses relative valuation (like P/E multipliers) and contingent claims.

Clearly written the book presents in detail simple to complex DCF based models (dividend discount model, free cashflow to equity and free cashflow to the firm). This range of models deal with the complex valuation problem of variable growth. After presenting a model, its limitations and best uses are explained.

He then shows how these models can be used to derive P/E, P/S, and P/BV ratios from fundamentals.

Abundant examples are used to make the material clear.

The book also discusses special situations, e.g., cyclical firms, and distressed firms to mention just a few.

At first glance this book might be mistaken for a "cook book". Lots of formulas and detailed examples of how to work them.

But there is more. And this is where the real "meat" of the book is - underpinning the seeming forest of details and examples - is a valuation logic and philosophy.

If you read this book carefully, you will develop an appreciation for the impact certain fundamentals have on valuation and how they interact with one another. This is much more important than memorizing the formulae in the book.

Also there is some very useful and frank discussion of shortcomings in some of the tools used, including the CAPM and a warning about being seduced into believing that the DCF approach results in certainty.

Valuation involves estimates and formulas (or multiples) are simplifications of very complex real world dynamics. In the businss world, valuation is typically a process of estimating ranges of values for each of several methods chosen (e.g., DCF, market comparables, precedent transacions, replacement value, etc). The resulting matrix of values is then compared (in effect cross checked) to come up with a range of possible values. And here the differences between buyer and seller affect the outcome - different assumptions re the DCF or the cashflow and synergies that can be achieved - come into play to create two different matrices of values - from which the two parties then negotiate the actual price.

The book and its author are well regarded. This particular volume is used in AIMR's CFA study program - which is a measure of its worth.

John Ehlers has again written a book that I believe is detined to become an "investment classic".

I have three things I look for in investment books and newsletters:
1) Original Research
2) Explained Methodology
3) Actionable Strategy

Many books deemed "classics" fail to meet one or more of these criteria. Very few meet all three. John Ehlers is rare in achieving all three with his works.

1) Original Research - Original research is key to being successful in the market. A technique that everyone knows is unlikely to work very well for trading or investing. Ehlers is a pioneer in applying advanced cycle measurement theory (MESA - Maximum Entropy Spectral Theory) to the stock market. In Cybernetics he extends and builds on his cycle work by also applying very advanced and sophisticated Digital Signal Processing (DSP) techniques to trading the market. More information on Ehlers MESA work can be found at www.mesasoftware.com. To my knowledge there is no one else using and reporting on the application of DSP to the market.

2) Explained Methodology - In my opinion this is where Ehlers really shines. While these DSP techniques are extremely sophisticated and mathematically intense, Ehlers cuts to the chase in a very concise fashion, explaining the core principles, presenting the math, but leaving the derivations and complication to the textbooks and the engineers. Ehlers makes the techniques acceessible to the trader/investor without trying to turn the reader into an Electrical Engineer.

3) Actionable Strategy - all the tools presented in the book are fully disclosed and accompanied by complete TradeStation Easy Language Code and eSignal Formula Script (EFS). In addition the code can be purchased from www.mesasoftware.com for a modest cost, to save yourself the typing and debugging time (your time is worth something). I use TradeStation. With the fully disclosed code, all of the indicators can be displayed, modified (if desired), combined with one another or other indicators, and your own systems created. Those systems can then be back-tested in TradeStation to see how they performed. They can also be optimized and otherwise worked with to create systems that work for you.

Ehlers has created a "cookbook" of indicators that use some of the most advanced concepts ever applied to the market.

Ehlers states: "... (the) historical performance of these systems is on a par with or exceeds, the performance of systems that would cost you thousands of dollars to purchase". Analysis with TradeStation confirms this.

This is an essential book for anyone interested in evaluating credit risk. It is well written and one of the best in its class in the market.

For more on products, however, especially the explosively growing credit derivatives market, I recommend Tavakoli's "Credit Derivatives" 2nd Edition.

This is probably still the best book on the valuation of credit risk. It is concise, rigorous, yet with many examples and a good treatment of implementation issues.

This book discusses credit risk valuation in detail and quantitatively. The book is very strong on counterparty credit risk of derivatives. That is really the focus, though it also has stuff on general credit risk and credit derivatives (I wish it had more on credit derivatives). It also offers a chapter on general option pricing and risk-neutral valuation principles (brief but very good). What I also liked was the appendix with a short description of the more important and more advanced mathematical concepts used in the book. Although (or perhaps because) not an easy read but rather terse and demanding, I found it to be an extremely valuable resource. It really helped me understand the subject matter and gave me a good idea of how to model such risks.

Professor Rappaport's revised version of his 1986 book on creating shareholder value provides a good description of the value based management concept that he helped create. However, many of the chapters are stand alone sections that do not flow well together. In some chapters he does not provide enough depth on how this book can actually be used by managers. In addition, the chapters on using his concepts to formulate value-maximizing business strategies was somewhat lacking.

Nevertheless, the book was an easy read and many of his points were right on target. I would also highly recommend interested readers to check out "The Value Imperative" by Marakon Associates and "Valuation" by McKinsey & Co for more information on value based management.

Professor Rappaport's revised and updated edition, provides a clear explanation of shareholder value concepts and application. One welcomed insight: he compares and contrasts the various shareholder methodologies (EVA and CFROI). As an indepent consultant specializing in shareholder value, I owe professor Rappaport and "Creating Shareholder Value" a debt of gratitude for introducing the critical link between corporate finance and competitive strategy. This is definately the "classic" work on shareholder value.

Given that investors value bonds by discounting future cash flows, it stands to reason that they value stocks in the same fashion. Alfred Rappaport is the founder of the shareholder value mindset which gained importance in the '80 and is widely accepted in this new millenium. Rappaport starts the book explaining that objections to using a discounted Cash Flow model do not hold. Strong arguments and empirical evidence is given to explain the market's valuation mechanism. What follows is a basic but thorough explanation of the 3 elements for valuing a company (cash flows , risk and the competitive advantage period). In the second part of the book, it will become clear for the reader DCF is closely linked to strategic analysis and is not in contradiction with stakeholder analysis, customer value analysis, Activity Based costing or any other tool. On the contrary, Rappaport shows DCF is a communication tool that helps investors understand a company's implied performance and how to (re)act. Together with the Valuation book from Copeland, Koller and Murrin this is the book you need.