corporate valuation

corporate valuation

(Parte 1 de 7)

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McKinsey & Company

Tim Koller Marc Goedhart David Wessels

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Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

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Cloth edition: ISBN 978-0-470-42465-0 Cloth edition with DCF Model Download: ISBN 978-0-470-42469-8 University edition: ISBN 978-0-470-42470-4 Workbook: ISBN 978-0-470-42464-3 DCF Model CD-ROM: ISBN 978-0-470-42457-5 DCF Model Download: ISBN 978-0-470-89455-2 Instructor’s Manual: ISBN 978-0-470-42472-8

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Contents

About the Authors ix Preface xi Acknowledgments xv

Part One Foundations of Value 1W hy Value Value? 3

2 Fundamental Principles of Value Creation 17 3 The Expectations Treadmill 45 4 Return on Invested Capital 59 5G rowth 81

Part Two Core Valuation Techniques 6 Frameworks for Valuation 103

7 Reorganizing the Financial Statements 133 8 Analyzing Performance and Competitive Position 165 9 Forecasting Performance 187 10 Estimating Continuing Value 213 1 Estimating the Cost of Capital 235 12 Moving from Enterprise Value to Value per Share 273 13 Calculating and Interpreting Results 295 14 Using Multiples to Triangulate Results 313

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Part Three Intrinsic Value and the Stock Market

15 Market Value Tracks Return on Invested Capital and Growth 337

16 Markets Value Substance, Not Form 357 17 Emotions and Mispricing in the Market 381 18 Investors and Managers in Efficient Markets 397

Part Four Managing for Value 19 Corporate Portfolio Strategy 413

20 Performance Management 429 21 Mergers and Acquisitions 445 2 Creating Value through Divestitures 469 23 Capital Structure 489 24 Investor Communications 525

Part Five Advanced Valuation Issues 25 Taxes 543

26 Nonoperating Expenses, One-Time Charges, Reserves, and Provisions 559

27 Leases, Pensions, and Other Obligations 575 28 Capitalized Expenses 593 29 Inflation 605 30 Foreign Currency 621 31 Case Study: Heineken 637

Part Six Special Situations 32 Valuing Flexibility 679

3 Valuation in Emerging Markets 713 34 Valuing High-Growth Companies 741 35 Valuing Cyclical Companies 755 36 Valuing Banks 765

Appendix A Economic Profit and the Key Value Driver Formula 791

Appendix B Discounted Economic Profit Equals Discounted Free Cash Flow 795

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CONTENTS vii

Appendix C Derivation of Free Cash Flow, Weighted

Average Cost of Capital, and Adjusted Present Value 799

Appendix D Levering and Unlevering the Cost of Equity 805 Appendix E Leverage and the Price-to-Earnings Multiple 813

Index 817

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About the Authors

The authors are all current or former consultants of McKinsey & Company’s corporate finance practice. Collectively they have more than 50 years of experience in consulting and financial education.

McKinsey & Company is a management-consulting firm that helps leading corporations and organizations make distinctive, lasting, and substantial improvements in their performance. Over the past seven decades, the firm’s primary objective has remained constant: to serve as an organization’s most trusted external advisor on critical issues facing senior management. With consultants deployed from over 80 offices in more than 40 countries, McKinsey advises companies on strategic, operational, organizational, financial, and technological issues. The firm has extensive experience in all major industry sectors and primary functional areas, as well as in-depth expertise in high-priority areas for today’s business leaders.

Tim Koller is a partner in McKinsey’s New York office. He leads the firm’s Corporate Performance Center and is a member of the leadership group of the firm’s global corporate finance practice. In his 25 years in consulting Tim has served clients globally on corporate strategy and capital markets, mergers and acquisitions (M&A) transactions, and value-based management. He leads the firm’s research activities in valuation and capital markets. He was formerly with Stern Stewart & Company and with Mobil Corporation. He received his MBA from the University of Chicago.

MarcGoedhartisaseniorexpertinMcKinsey’sAmsterdamofficeandleadsthe firm’s Corporate Performance Center in Europe. Over the past 15 years, Marc has served clients across Europe on portfolio restructuring, capital markets,

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David Wessels is an adjunct professor of finance at the Wharton School of the University of Pennsylvania. Named by BusinessWeek as one of America’s top business school instructors, he teaches courses on corporate valuation and privateequityattheMBAandexecutiveMBAlevels.Davidisalso adirectorin Wharton’s executive education group, serving on the executive development facultiesofseveralFortune500companies.AformerconsultantwithMcKinsey, he received his PhD from the University of California at Los Angeles.

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Preface

The first edition of this book appeared in 1990, and we are encouraged that it continues to attract readers around the world. We believe the book appeals to readerseverywherebecausetheapproachitadvocatesisgroundedinuniversal economic principles. While we continue to improve, update, and expand the text as our experience grows and as business and finance continue to evolve, those universal principles do not change.

The 20 years since that first edition have been a remarkable period in business history, and managers and investors continue to face opportunities and challenges emerging from it. The events of the economic crisis that began in 2007, as well as the Internet boom and its fallout almost a decade earlier, have strengthened our conviction that the core principles of value creation are general economic rules that continue to apply in all market circumstances. Thus, the extraordinarily high anticipated profits represented by stock prices during the Internet bubble never materialized, because there was no “new economy.” Similarly, the extraordinarily high profits seen in the financial sector for the two years preceding the start of the 2007 financial crisis were overstated, as subsequent losses demonstrated. The laws of competition should have alerted investors that those extraordinary profits couldn’t last and might not be real.

Over the past 20 years, we have also seen confirmed that for some companies, some of the time, the stock market may not be a reliable indicator of value. Knowing that value signals from the stock market may occasionally be unreliable makes us even more certain that managers need at all times to understand the underlying, intrinsic value of their company and how it can create more value. In our view, clear thinking about valuation and skill in using valuation to guide business decisions are prerequisites for company success.

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Not all CEOs, business managers, and financial managers do understand value in great depth, although they need to understand it fully if they are to do their jobs well and fulfill their responsibilities. This book offers them the necessary understanding, its practical intent reflecting its origin as a handbook for McKinsey consultants. We publish it for the benefit of current and future managers who want their companies to create value, and also for their investors. It aims to demystify the field of valuation and to clarify the linkages between strategy and finance. So while it draws on leading-edge academic thinking, it is primarily a how-to book and one we hope that you will use again and again. This is no coffee-table tome: If we have done our job well, it will soon be full of underlinings, margin notations, and highlightings.

The book’s messages are simple: Companies thrive when they create real economic value for their shareholders. Companies create value by investing capital at rates of return that exceed their cost of capital. And these two truths apply across time and geography. The book explains why these core principles of value creation are true and how companies can increase value by applying the principles to decisions, and demonstrates practical ways to implement the principles in their decision-making.

The technical chapters of the book aim to explain step-by-step how to do valuation well. We spell out valuation frameworks that we use in our consulting work, and we illustrate them with detailed case studies that highlight the practical judgments involved in developing and using valuations. Just as important, the management chapters discuss how to use valuation to make good decisions about courses of action for a company. Specifically, they will help business managers understand how to:

Decide among alternative business strategies by estimating the value of each strategic choice.

Develop a corporate portfolio strategy, based on understanding which business units a corporate parent is best positioned to own, and which might perform better under someone else’s ownership.

Assess major transactions, including acquisitions, divestitures, and restructurings.

Improve a company’s performance management systems to align an organization’s various parts to create value.

Communicate effectively with investors, including both who to talk and listen to and how.

Designaneffectivecapitalstructuretosupportthecorporation’sstrategy and minimize the risk of financial distress.

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STRUCTURE OF THE BOOK xiii

In this fifth edition, we continue to expand the practical application of finance to real business problems, reflecting the economic events of the past decade, newdevelopmentsinacademicfinance,andtheauthors’ownexperiences.The edition is organized in six parts, each with a distinct focus.

Part One, Foundations of Value, provides an overview of value creation.

We make the case that managers should focus on long-term value creation despite the capital market turmoil of the past several years. We explain the two core principles of value creation: first, the idea that return on capital and growth drive cash flow, which in turn drives value, and second, the conservation of value principle, that anything that doesn’t increase cash flow doesn’t create value (unless it reduces risk). We devote a chapter each to return on invested capital and to growth, including strategic principles and empirical insights.

Part Two, Core Valuation Techniques, is a self-contained handbook for using discounted cash flow (DCF) to value a company. A reader will learn how to analyze historical performance, forecast free cash flows, estimate the appropriate opportunity cost of capital, identify sources of value, and interpret results. We also show how to use multiples of comparable companies to supplement DCF valuations.

Part Three, Intrinsic Value and the Stock Market, presents the empirical evidence that share prices reflect the core principles of value creation and are not influenced by earnings management, accounting results, or institutional trading factors such as cross-listings. It also describes the rare circumstances under which share prices for individual companies or, very occasionally, the marketingeneralmaytemporarilyviolatethecoreprinciples.Thefinalchapter explainswhatmakesstockmarketsefficient,whichtypeofinvestorsultimately determine the trading range of a company’s share price, and the implications of their influence for managers.

(Parte 1 de 7)

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