Rating: 
Summary: First Rate
Review: 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.
Rating:
Summary: First Rate
Review: 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.
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