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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.

Valuation - Measuring and Managing the Value of Companies, Seventh Edition

About the Authors ix





Preface xi





Acknowledgments xv





Part One Foundations of Value





1 Why Value Value? 3





2 Finance in a Nutshell 17





3 Fundamental Principles of Value Creation 27





4 Risk and the Cost of Capital 55





5 The Alchemy of Stock Market Performance 69





6 Valuation of ESG and Digital Initiatives 83





7 The Stock Market is Smarter Than You Think 99





8 Return on Invested Capital 127





9 Growth 155





Part Two Core Valuation Techniques





10 Frameworks for Valuation 177





11 Reorganizing the Financial Statements 205





12 Analyzing Performance 239





13 Forecasting Performance 259





14 Estimating Continuing Value 285





15 Estimating the Cost of Capital 305





16 Moving from Enterprise Value to Value per Share 335





17 Analyzing the Results 357





18 Using Multiples 367





19 Valuation by Parts 391





Part Three Advanced Valuation Techniques





20 Taxes 413





21 Nonoperating Items, Provisions, and Reserves 427





22 Leases 443





23 Retirement Obligations 457





24 Measuring Performance in Capital-Light Businesses 467





25 Alternative Ways to Measure Return on Capital 483





26 Inflation 493





27 Cross-Border Valuation 507





Part Four Managing for Value





28 Corporate Portfolio Strategy 527





29 Strategic Management: Analytics 547





30 Strategic Management: Mindsets and Behaviors 571





31 Mergers and Acquisitions 585





32 Divestitures 613





33 Capital Structure, Dividends, and Share Repurchases 633





34 Investor Communications 667





Part Five Special Situations





35 Emerging Markets 691





36 High-Growth Companies 709





37 Cyclical Companies 725





38 Banks 733





39 Flexibility 759





Appendix A Discounted Economic Profit Equals Discounted Free Cash Flow 793





Appendix B Derivation of Free Cash Flow, Weighted Average Cost of Capital, and Adjusted Present Value 799





Appendix C Levering and Unlevering the Cost of Equity 805





Appendix D Leverage and the Price-to-Earnings Multiple 813





Appendix E Other Capital Structure Issues 817





Appendix F Technical Issues in Estimating the Market Risk Premium 823





Appendix G Global, International, and Local CAPM 827





Appendix H A Valuation of Costco Wholesale 835





Appendix I Two-Stage Formula for Continuing Value 859





Index 861