Valuation Workbook

About the Authors ix Introduction xi Part One Questions 1 Why Value Value? 3 2 Finance in a Nutshell 5 3 Fundamental Principles of Value Creation 7 4 Risk and the Cost of Capital 11 5 The Alchemy of Stock Market Performance 15 6 Valuation of ESG and Digital Initiatives 19 7 The Stock Market is Smarter Than You Think 21 8 Return on Invested Capital 27 9 Growth 31 10 Frameworks for Valuation 35 11 Reorganizing the Financial Statements 39 12 Analyzing Performance 43 13 Forecasting Performance 47 14 Estimating Continuing Value 51 15 Estimating the Cost of Capital 55 16 Moving from Enterprise Value to Value per Share 59 17 Analyzing the Results 63 18 Using Multiples 67 19 Valuation by Parts 71 20 Taxes 75 21 Nonoperating Items, Provisions, and Reserves 77 22 Leases 81 23 Retirement Obligations 83 24 Measuring Performance in Capital-Light Businesses 85 25 Alternative Ways to Measure Return on Capital 89 26 Inflation 91 27 Cross-Border Valuation 95 28 Corporate Portfolio Strategy 99 29 Strategic Management: Analytics 103 30 Strategic Management: Mindsets and Behaviors 107 31 Mergers and Acquisitions 111 32 Divestitures 115 33 Capital Structure, Dividends, and Share Repurchases 119 34 Investor Communications 123 35 Emerging Markets 127 36 High-Growth Companies 129 37 Cyclical Companies 131 38 Banks 135 39 Flexibility 139 Part Two Solutions 1 Why Value Value? 145 2 Finance in a Nutshell 147 3 Fundamental Principles of Value Creation 149 4 Risk and the Cost of Capital 151 5 The Alchemy of Stock Market Performance 153 6 Valuation of ESG and Digital Initiatives 155 7 The Stock Market is Smarter Than You Think 157 8 Return on Invested Capital 159 9 Growth 161 10 Frameworks for Valuation 163 11 Reorganizing the Financial Statements 165 12 Analyzing Performance 167 13 Forecasting Performance 169 14 Estimating Continuing Value 173 15 Estimating the Cost of Capital 175 16 Moving from Enterprise Value to Value per Share 177 17 Analyzing the Results 179 18 Using Multiples 181 19

MCKINSEY & COMPANY is a global management-consulting firm that serves leading global organizations across a wide range of industries and functions, helping them create change that matters.

TIM KOLLER is a partner in McKinsey's Stamford, Connecticut office, where he leads a global team of corporate-finance consultants. Tim has served clients globally on corporate strategy and capital markets, mergers, acquisitions and other transactions, and strategic planning and resource allocation.

MARC GOEDHART is a senior expert in McKinsey's Amsterdam office and endowed professor of corporate valuation at Rotterdam School of Management, Erasmus University (RSM).

DAVID WESSELS is an adjunct professor of finance at the Wharton School of the University of Pennsylvania. He was named by Bloomberg Businessweek as one of America's top business school instructors.

MICHAEL CICHELLO is a teaching professor at the McDonough School of Business at Georgetown University.