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Value: The Four Cornerstones of Corporate Finance

Book Description

An accessible guide to the essential issues of corporate finance

While you can find numerous books focused on the topic of corporate finance, few offer the type of information managers need to help them make important decisions day in and day out.

Value explores the core of corporate finance without getting bogged down in numbers and is intended to give managers an accessible guide to both the foundations and applications of corporate finance. Filled with in-depth insights from experts at McKinsey & Company, this reliable resource takes a much more qualitative approach to what the authors consider a lost art.

  • Discusses the four foundational principles of corporate finance

  • Effectively applies the theory of value creation to our economy

  • Examines ways to maintain and grow value through mergers, acquisitions, and portfolio management

  • Addresses how to ensure your company has the right governance, performance measurement, and internal discussions to encourage value-creating decisions

A perfect companion to the Fifth Edition of Valuation, this book will put the various issues associated with corporate finance in perspective.

Table of Contents

  1. Cover
  2. Half Title Page
  3. Title Page
  4. Copyright
  5. About the Authors
  6. Acknowledgments
  7. Preface
  8. Part One: The Four Cornerstones
    1. 1: Why Value Value?
      1. THE FOUR CORNERSTONES
      2. CONSEQUENCES OF NOT VALUING VALUE
      3. ADVANTAGES OF VALUING VALUE
      4. CHALLENGES FOR EXECUTIVES
    2. 2: The Core of Value
      1. RELATING GROWTH, ROIC, AND CASH FLOW
      2. REAL-WORLD EVIDENCE
      3. MANAGERIAL IMPLICATIONS
    3. 3: The Conservation of Value
      1. FOUNDATIONS OF VALUE CONSERVATION
      2. MANAGERIAL IMPLICATIONS
    4. 4: The Expectations Treadmill
      1. SHAREHOLDER RETURNS AND UNDERLYING VALUE
      2. UNDERSTANDING EXPECTATIONS
      3. MANAGERIAL IMPLICATIONS
    5. 5: The Best Owner
      1. WHO'S THE BEST OWNER?
      2. BEST-OWNER LIFE CYCLE
      3. MANAGERIAL IMPLICATIONS
  9. Part Two: The Stock Market
    1. 6: Who Is the Stock Market?
      1. A MODEL OF THE MARKET
      2. CONVENTIONAL WISDOM
      3. BETTER WAY TO UNDERSTAND INVESTORS
      4. INTRINSIC INVESTORS DRIVE VALUATION LEVELS
    2. 7: The Stock Market and the Real Economy
      1. SHAREHOLDER RETURNS FOR 100 YEARS
      2. STOCK MARKET ERAS 1960–2009
      3. MODELING THE MARKET OVER ONE-YEAR PERIODS
      4. MAKING SENSE OF THE MARKET
    3. 8: Stock Market Bubbles
      1. WHY DO BUBBLES ARISE?
      2. MARKETWIDE BUBBLES
      3. SECTOR AND COMPANY BUBBLES
      4. FINANCIAL CRISES
      5. BUBBLES REINFORCE NEED TO FOCUS ON LONG-TERM VALUE CREATION
    4. 9: Earnings Management
      1. CONSENSUS ESTIMATES DON'T MATTER
      2. EARNINGS VOLATILITY IS INEVITABLE
      3. ACCOUNTING TREATMENT WON'T CHANGE UNDERLYING VALUE
  10. Part Three: Managing Value Creation
    1. 10: Return on Capital
      1. WHAT DRIVES RETURN ON CAPITAL?
      2. RETURN ON CAPITAL SUSTAINABILITY
      3. TRENDS IN RETURNS ON CAPITAL
      4. RETURN ON CAPITAL IS STILL RELEVANT
    2. 11: Growth
      1. DIFFERENT GROWTH CREATES DIFFERENT VALUE
      2. GROWTH IS DIFFICULT TO SUSTAIN
      3. GROWTH REQUIRES CONTINUAL SEARCH FOR NEW MARKETS
    3. 12: The Business Portfolio
      1. BEST OWNER: CORPORATE VALUE ADDED
      2. DIVESTITURES: REGULAR PRUNING
      3. ADDING TO THE PORTFOLIO
      4. BUSINESS PORTFOLIO DIVERSIFICATION
      5. SIZE AND SCALE
    4. 13: Mergers and Acquisitions
      1. MEASURING VALUE CREATION
      2. EMPIRICAL RESULTS
      3. VALUE-CREATING ACQUISITION ARCHETYPES
      4. MORE DIFFICULT STRATEGIES FOR CREATING VALUE FROM ACQUISITIONS
      5. FOCUS ON VALUE CREATION, NOT ACCOUNTING
    5. 14: Risk
      1. RISK AFFECTS COMPANIES AND INVESTORS DIFFERENTLY
      2. MEASURING RISK
      3. COMPANIES SHOULD RETAIN SOME RISKS
      4. FINANCIAL MARKETS ARE OF LIMITED HELP IN REDUCING ECONOMIC RISKS
      5. HOW MUCH RISK TO ADOPT
      6. RISK CULTURE
    6. 15: Capital Structure
      1. THE MIX OF DEBT AND EQUITY
      2. COMPLEX FINANCIAL STRUCTURES AND FINANCIAL ENGINEERING
      3. DIVIDENDS AND SHARE REPURCHASES
    7. 16: Investor Communications
      1. OBJECTIVES OF INVESTOR COMMUNICATIONS
      2. INTRINSIC VALUE VERSUS MARKET VALUE
      3. WHICH INVESTORS MATTER?
      4. COMMUNICATING TO INTRINSIC INVESTORS
      5. GUIDANCE
      6. LISTENING TO INVESTORS
    8. 17: Managing for Value
      1. ORGANIZING FOR VALUE
      2. PERFORMANCE MEASUREMENT
      3. COMPENSATION
      4. STRATEGIC PLANNING AND BUDGETING
      5. BOARD OF DIRECTORS
  11. Appendix A: The Math of Value
  12. Appendix B: The Use of Earnings Multiples
  13. Index