Key Points:
- Valuation: Measuring and Managing the Value of Companies, 7th Edition provides a step-by-step guide to measuring and assessing the value of a company.
- The book addresses the challenges of valuing companies with increasing investments in intangible assets, the dominance of technology companies with network effects, and the incorporation of environmental, social, and governance (ESG) factors in valuation.
- The authors emphasize that companies that grow and earn a return on capital that exceeds their cost of capital create value.
- The book highlights the importance of focusing on expected cash flows rather than earnings per share when valuing a company.
- Analysts should consider the key drivers of value, including return on invested capital, revenue growth, and free cash flow.
- The authors provide detailed methods for calculating value using enterprise discounted cash flow (DCF) and discounted economic profit approaches.
- High-ROIC companies should focus on growth, while low-ROIC companies should prioritize improving returns.
- Competitive advantages such as innovative products, quality, brand, customer lock-in, and rational price discipline contribute to premium prices.
- In industries with network effects, competition is kept at bay by the low and decreasing unit costs of the market leader.
- Divestitures typically add value, while one-third or more of acquiring companies destroy value for their shareholders.
- Corporate strategies that address ESG issues can boost cash flows by facilitating revenue growth, reducing costs, minimizing regulatory interventions, increasing employee productivity, and optimizing investments and capital expenditures.
Investors, CEOs, business managers, and financial managers can benefit from the insights and tools provided in Valuation: Measuring and Managing the Value of Companies for creating and measuring value.
