Investment Valuation.pdf

(9378 KB) Pobierz
Aswath Damodaran
INVESTMENT VALUATION:
SECOND EDITION
Chapter 1: Introduction to Valuation
Chapter 2: Approaches to Valuation
Chapter 3: Understanding Financial Statements
Chapter 4: The Basics of Risk
Chapter 5: Option Pricing Theory and Models
Chapter 6: Market Efficiency: Theory and Models
Chapter 7: Riskless Rates and Risk Premiums
Chapter 8: Estimating Risk Parameters and Costs of Financing
Chapter 9: Measuring Earnings
Chapter 10: From Earnings to Cash Flows
Chapter 11: Estimating Growth
Chapter 12: Closure in Valuation: Estimating Terminal Value
Chapter 13: Dividend Discount Models
Chapter 14: Free Cashflow to Equity Models
Chapter 15: Firm Valuation: Cost of Capital and APV Approaches
Chapter 16: Estimating Equity Value Per Share
Chapter 17: Fundamental Principles of Relative Valuation
Chapter 18: Earnings Multiples
Chapter 19: Book Value Multiples
Chapter 20: Revenue and Sector-Specific Multiples
3
16
37
81
121
152
211
246
311
341
373
425
450
487
533
593
637
659
718
760
Chapter 21: Valuing Financial Service Firms
Chapter 22: Valuing Firms with Negative Earnings
Chapter 23: Valuing Young and Start-up Firms
Chapter 24: Valuing Private Firms
Chapter 25: Acquisitions and Takeovers
Chapter 26: Valuing Real Estate
Chapter 27: Valuing Other Assets
Chapter 28: The Option to Delay and Valuation Implications
Chapter 29: The Option to Expand and Abandon: Valuation Implications
Chapter 30: Valuing Equity in Distressed Firms
Chapter 31: Value Enhancement: A Discounted Cashflow Framework
Chapter 32: Value Enhancement: EVA, CFROI and Other Tools
Chapter 33: Valuing Bonds
Chapter 34: Valuing Forward and Futures Contracts
Chapter 35: Overview and Conclusions
References
802
847
891
928
969
1028
1067
1090
1124
1155
1176
1221
1256
1308
1338
1359
1
CHAPTER 1
INTRODUCTION TO VALUATION
Every asset, financial as well as real, has a value. The key to successfully investing
in and managing these assets lies in understanding not only what the value is but also the
sources of the value. Any asset can be valued, but some assets are easier to value than
others and the details of valuation will vary from case to case. Thus, the valuation of a
share of a real estate property will require different information and follow a different
format than the valuation of a publicly traded stock. What is surprising, however, is not
the differences in valuation techniques across assets, but the degree of similarity in basic
principles. There is undeniably uncertainty associated with valuation. Often that
uncertainty comes from the asset being valued, though the valuation model may add to
that uncertainty.
This chapter lays out a philosophical basis for valuation, together with a
discussion of how valuation is or can be used in a variety of frameworks, from portfolio
management to corporate finance.
A philosophical basis for valuation
It was Oscar Wilde who described a cynic as one who “knows the price of
everything, but the value of nothing”. He could very well have been describing some
equity research analysts and many investors, a surprising number of whom subscribe to
the 'bigger fool' theory of investing, which argues that the value of an asset is irrelevant as
long as there is a 'bigger fool' willing to buy the asset from them. While this may provide a
basis for some profits, it is a dangerous game to play, since there is no guarantee that such
an investor will still be around when the time to sell comes.
A postulate of sound investing is that an investor does not pay more for an asset
than its worth. This statement may seem logical and obvious, but it is forgotten and
rediscovered at some time in every generation and in every market. There are those who
are disingenuous enough to argue that value is in the eyes of the beholder, and that any
price can be justified if there are other investors willing to pay that price. That is patently
absurd. Perceptions may be all that matter when the asset is a painting or a sculpture, but
investors do not (and should not) buy most assets for aesthetic or emotional reasons;
2
financial assets are acquired for the cashflows expected on them. Consequently,
perceptions of value have to be backed up by reality, which implies that the price paid
for any asset should reflect the cashflows that it is expected to generate. The models of
valuation described in this book attempt to relate value to the level and expected growth
in these cashflows.
There are many areas in valuation where there is room for disagreement, including
how to estimate true value and how long it will take for prices to adjust to true value. But
there is one point on which there can be no disagreement. Asset prices cannot be justified
by merely using the argument that there will be other investors around willing to pay a
higher price in the future.
Generalities about Valuation
Like all analytical disciplines, valuation has developed its own set of myths over
time. This section examines and debunks some of these myths.
Myth 1: Since valuation models are quantitative, valuation is objective
Valuation is neither the science that some of its proponents make it out to be nor
the objective search for the true value that idealists would like it to become. The models
that we use in valuation may be quantitative, but the inputs leave plenty of room for
subjective judgments. Thus, the final value that we obtain from these models is colored by
the bias that we bring into the process. In fact, in many valuations, the price gets set first
and the valuation follows.
The obvious solution is to eliminate all bias before starting on a valuation, but this
is easier said than done. Given the exposure we have to external information, analyses and
opinions about a firm, it is unlikely that we embark on most valuations without some
bias. There are two ways of reducing the bias in the process. The first is to avoid taking
strong public positions on the value of a firm before the valuation is complete. In far too
many cases, the decision on whether a firm is under or over valued precedes the actual
3
valuation
1
, leading to seriously biased analyses. The second is to minimize the stake we
have in whether the firm is under or over valued, prior to the valuation.
Institutional concerns also play a role in determining the extent of bias in
valuation. For instance, it is an acknowledged fact that equity research analysts are more
likely to issue buy rather than sell recommendations,
2
i.e., that they are more likely to
find firms to be undervalued than overvalued. This can be traced partly to the difficulties
they face in obtaining access and collecting information on firms that they have issued sell
recommendations and to the pressure that they face from portfolio managers, some of
whom might have large positions in the stock. In recent years, this trend has been
exacerbated by the pressure on equity research analysts to deliver investment banking
business.
When using a valuation done by a third party, the biases of the analyst(s) doing
the valuation should be considered before decisions are made on its basis. For instance, a
self-valuation done by a target firm in a takeover is likely to be positively biased. While
this does not make the valuation worthless, it suggests that the analysis should be viewed
with skepticism.
The Biases in Equity Research
The lines between equity research and salesmanship blur most in periods that are
characterized by “irrational exuberance”. In the late 1990s, the extraordinary surge of
market values in the companies that comprised the new economy saw a large number of
equity research analysts, especially on the sell side, step out of their roles as analysts and
become cheerleaders for these stocks. While these analysts might have been well meaning
in their recommendations, the fact that the investment banks that they worked for were
leading the charge on new initial public offerings from these firms exposed them to charges
of bias and worse.
1
This
is most visible in takeovers, where the decision to acquire a firm often seems to
precede the valuation of the firm. It should come as no surprise, therefore, that the
analysis almost invariably supports the decision.
2
In most years, buy recommendations outnumber sell recommendations by a margin of
ten to one. In recent years, this trend has become even stronger.

Plik z chomika:

Inne pliki z tego folderu:

Inne foldery tego chomika:

Zgłoś jeśli naruszono regulamin