Valuation: Measuring and Managing the Value of Companies, Fifth Edition

1

Assuming there are no changes in the company’s risk profile.

2

In Chapter 23 we show that the tax savings from debt may increase the company’s cash flows.

3

A. Marshall, Principles of Economics, vol. 1 (New York: Macmillan, 1890), 142.

4

C. Shapiro and H. Varian, Information Rules: A Strategic Guide to the Network Economy (Boston: Harvard Business School Press, 1999).

5

Eduardo Porter, “The Lion, the Bull and the Bears,” New York Times, October 17, 2008.

6

Richard Dobbs, Bin Jiang, and Timothy Koller, “Why the Crisis Hasn’t Shaken the Cost of Capital,” McKinsey on Finance, no. 30 (Winter 2009): 26-30.

7

Richard Dobbs and Timothy Koller, “The Crisis: Timing Strategic Moves,” McKinsey on Finance, no. 31 (Spring 2009): 1-5

8

Sheila Bonini, Timothy Koller, and Philip H. Mirvis, “Valuing Social Responsibility Programs,” McKinsey on Finance, no. 32 (Summer 2009): 11-18.

9

John R. Graham, Cam Harvey, and Shiva Rajgopal, “The Economic Implications of Corporate Financial Reporting,” Journal of Accounting and Economics 40 (2005): 3-73.

10

A simple definition of return on invested capital is after-tax operating profit divided by invested capital (working capital plus fixed assets). ROIC’s calculation from a company’s financial statements is explained in detail in Chapters 6 and 7.

11

In its purest form, value is the sum of the present values of future expected cash flows—a point-in-time measure. Value creation is the change in value due to company ...