Investment Valuation: Tools and Techniques for Determining the Value of any Asset, University Edition

Valuation is at the heart of any investment decision, whether that decision is buy, sell, or hold. But the pricing of many assets has become a more complex task in modern markets, especially after the recent financial crisis. Now completely revised and updated to reflect changing market conditions, the Third University Edition of Investment Valuation provides expert instruction on how to value virtually any type of asset—stocks, bonds, options, futures, real assets, and much more. Written by noted valuation authority—and acclaimed New York University Stern Business School Professor—Aswath Damodaran, this reliable resource uses real-world examples and the most current valuation tools to guide you through the theory and application of various valuation models. Along the way, it provides comprehensive coverage of: The valuation lessons learned from the recent market crisis Using real option theory and option pricing models in valuing business and equity Valuation of unconventional assets, financial service firms, start-ups, emerging market companies, and many other traditionally valued assets Probabilistic approaches in valuation, such as scenario analysis, decision trees, and simulations How to choose the right model for any given asset valuation scenario A perfect guide for those who need to know more about the tricky business of valuation, the Third University Edition of Investment Valuation —which includes an instructor's companion site—will be an essential asset to anyone learning about this critical part of the investment process.

CHAPTER 1 Introduction to Valuation 1 CHAPTER 2 Approaches to Valuation 11 CHAPTER 3 Understanding Financial Statements 27 CHAPTER 4 The Basics of Risk 58 CHAPTER 5 Option Pricing Theory and Models 87 CHAPTER 6 Market Efficiency—Definition, Tests, and Evidence 111 CHAPTER 7 Riskless Rates and Risk Premiums 154 CHAPTER 8 Estimating Risk Parameters and Costs of Financing 182 CHAPTER 9 Measuring Earnings 229 CHAPTER 10 From Earnings to Cash Flows 250 CHAPTER 11 Estimating Growth 271 CHAPTER 12 Closure in Valuation: Estimating Terminal Value 304 CHAPTER 13 Dividend Discount Models 323 CHAPTER 14 Free Cash Flow to Equity Discount Models 351 CHAPTER 15 Firm Valuation: Cost of Capital and Adjusted Present Value Approaches 380 CHAPTER 16 Estimating Equity Value per Share 423 CHAPTER 17 Fundamental Principles of Relative Valuation 453 CHAPTER 18 Earnings Multiples 468 CHAPTER 19 Book Value Multiples 511 CHAPTER 20 Revenue Multiples and Sector–Specific Multiples 542 CHAPTER 21 Valuing Financial Service Firms 581 CHAPTER 22 Valuing Firms with Negative or Abnormal Earnings 611 CHAPTER 23 Valuing Young or Start–Up Firms 643 CHAPTER 24 Valuing Private Firms 667 CHAPTER 25 Aquisitions and Takeovers 702 CHAPTER 26 Valuing Real Estate 739 CHAPTER 27 Valuing Other Assets 766 CHAPTER 28 The Option to Delay and Valuation Implications 781 CHAPTER 29 The Options to Expand and to Abandon: Valuation Implications 805 CHAPTER 30 Valuing Equity in Distressed Firms 826 CHAPTER 31 Value Enhancement: A Discounted Cash Flow Valuation Framework 841 CHAPTER 32 Value Enhancement: Economic Value Added, Cash Flow Return on Investment, and Other Tools 869 CHAPTER 33 Probabilistic Approaches in Valuation: Scenario Analysis, Decision Trees, and Simulations 894 CHAPTER 34 Overview and Conclusion 925 References 939 Index 954

ASWATH DAMODARAN is Professor of Finance at New York University's Leonard N. Stern School of Business. He has been the recipient of numerous awards for outstanding teaching, including the NYU university-wide Distinguished Teaching Award, and was named one of the nation's top business school teachers by BusinessWeek in 1994. In addition, Damodaran teaches training courses in corporate finance and valuation at many leading investment banks. His publications include Damodaran on Valuation: Security Analysis for Investment and Corporate Finance ; Investment Valuation ; Corporate Finance ; Investment Management ; and Applied Corporate Finance , all published by Wiley, and The Dark Side of Valuation .