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Valuation: Avoiding the Winner's Curse
- By Kenneth R. Ferris, Barbara S. Petitt
- Published Jan 14, 2002 by FT Press.
Book
- Sorry, this book is no longer in print.
Description
- Copyright 2002
- Edition: 1st
- Book
- ISBN-10: 0-13-034804-X
- ISBN-13: 978-0-13-034804-3
In Valuation: Avoiding the Winner's Curse, authors Kenneth R. Ferris and Barbara S. Pecherot Petitt will help you master both the science and the art of M&A valuation. Concise, realistic, and easy to use, it brings together the field's best "rules of thumb," compares every leading traditional and alternative approach, presents examples and case studies from many industries, and offers practical solutions for today's key accounting, reporting, and tax-related challenges.
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Valuation: Avoiding the Winner's Curse
Table of Contents
Preface.
1. Valuation: An Overview.
Why Firms Merge or Acquire: A Historical Perspective. Merger and Acquisition Premiums. The Process of Valuation. Alternative Valuation Frameworks. Summary. Notes.
2. Financial Review and Pro Forma Analysis.
Financial Review. Pro Forma Analysis. Sensitivity Analysis: Alternative Scenarios. Summary. Notes. Appendix 2A: Nokia Corporation Financial Data. Appendix 2B: Preparation of Statement of Cash Flows. Appendix 2C: Displayed Formulas for EXCELª Spreadsheet. Appendix 2D: Account Forecasting Alternatives.
3. Traditional Valuation Models.
Earnings Multiples Analysis. Discounted Cash Flow Analysis. Summary. Notes. Appendix 3A: Calculating the WACC for a Complex Capital Structure. Appendix 3B: Some Frequently Asked Questions and Answers About DCFA and Earnings Multiples Valuation.
4. Alternative Valuation Models.
Valuation in the Absence of Earnings or Cash Flow. Valuation When Capital Structure Changes. Economic Value Analysis. Real Options Analysis. Summary. Notes. Appendix 4A: Discounted Cash Flow Analysis: GoAmerica, Inc. Appendix 4B: Capital Cash Flow Analysis. Appendix 4C: DCFA When a Firm's Capital Structure Changes. Appendix 4D: The Black-Scholes Model.
5. Accounting Dilemmas in Valuation Analysis.
Assessing Economic Reality. Income Statement Transformations: Forecasting Permanent Earnings and Free Cash Flows. Balance Sheet Transformations: Forecasting the Equity Value of a Company. Cash Flow Statement Transformations: Forecasting CFFO and Free Cash Flow. Summary. Notes.
6. Financial Reporting and Tax Considerations in Mergers and Acquisitions.
Financial Reporting: To Combine, or Not to Combine? Consolidated Reporting: Pooling versus Purchase Accounting. Pooling versus Purchase Accounting: The Effect on Firm Valuation. Tax Considerations of Mergers and Acquisitions. Minority Interest. Accounting for Goodwill. Summary. Notes. Appendix 6A: Negative Goodwill.
7. Some Final Thoughts.
Valuation: A DebrieÞng. Some Caveats to Consider. Closure.
Bibliography.
Index.
Preface
Preface
Valuation is the essence of finance. It asks the question, "What is the 'fair' price to pay for an asset that has a set of uncertain future cash flows?" In the past, the answer to this question was provided by time-tested methods. In recent years, however, new approaches have emerged as practitioners have sought improved ways to assess value. New approaches have also evolved in response to the development of the "new economy" and the many e-commerce companies that were privatized without a history of either earnings or cash flows.
With the backdrop of a rapidly changing valuation environment, this book presents a practitioner-oriented view of the fundamentals of firm valuation. The focus is on valuation for acquisition purposes. In large measure, an acquisition is viewed herein as equivalent to the purchase of any productive asset, namely, as a capital budgeting exercise. Furthermore, valuation is considered to be an art, not a science. Consequently, the reader will find that there are many "rules of thumb" but few inviolable principles to guide them.
The metrics used for valuing companies are not well defined, varying often according to the objectives of the valuation and often with the companies themselves. Consequently, executives and equity analysts face many choices and dilemmas as they try to assess value. Throughout this book, practical solutions are suggested for dealing with these dilemmas and for helping the reader make informed choices. The methods discussed are principally for use in nonfinancial companies; the topic of valuing financial companies is beyond the scope of this book.
To use this book effectively, the reader will need an understanding of the fundamentals of accounting and finance. Furthermore, a background in spreadsheet software, such as EXCEL, is also beneficial.