Valuation Techniques

DAVID T. LARRABEE, CFA, is director of member and corporate products at CFA Institute, where he also serves as a content director in the areas of portfolio management and equity investments. Prior to joining CFA Institute, Mr. Larrabee spent two decades in the asset management industry as a portfolio manager and analyst. He earned a BA in economics from Colgate University and an MBA in finance from Fordham University.JASON A. VOSS, CFA, is a content director at CFA Institute, where he focuses on fixed income, behavioral finance, and corporate finance. He is the author of The Intuitive Investor, and he also authored the What My Intuition Tells Me Now investment blog. Previously, he was a portfolio manager at Davis Selected Advisers, L.P., where he built an impressive track record co-managing the Davis Appreciation and Income Fund. Mr. Voss earned a BA in economics and an MBA in finance and accounting from the University of Colorado.

• Foreword ixIntroduction 1PART I: VALUATION PERSPECTIVES: THEN AND NOW 3CHAPTER 1 Two Illustrative Approaches to Formula Valuations of Common Stocks 5Benjamin GrahamReprinted from the Financial Analysts Journal (November 1957):1115.CHAPTER 2 Seeking a Margin of Safety and Valuation 17Matthew B. McLennan, CFAReprinted from CFA Institute Conference Proceedings Quarterly (June 2011): 2734.PART II: VALUATION METHODOLOGIES 29CHAPTER 3 Company Performance and Measures of Value Added 31Pamela P. Peterson, CFA, and David R. PetersonReprinted from the Research Foundation of CFA Institute (December 1996).CHAPTER 4 The Affordable Dividend Approach to Equity Valuation 93Alfred RappaportReprinted from the Financial Analysts Journal (July/August 1986):5258.CHAPTER 5 Discounted-Cash-Flow Approach to Valuation 105Gregory A. Gilbert, CFAReprinted from ICFA Continuing Education Series (1990):2330.CHAPTER 6 Equity Securities Analysis Case Study: Merck & Company 115Randall S. Billingsley, CFAReprinted from AIMR Conference Proceedings: Equity Securities Analysis and Evaluation (December 1993):6395.CHAPTER 7 Traditional Equity Valuation Methods 155Thomas A. Martin, Jr., CFAReprinted from AIMR Conference Proceedings (May 1998):2135.CHAPTER 8 A Simple Valuation Model and Growth Expectations 177Morris G. DanielsonReprinted from the Financial Analysts Journal (May/June 1998):5057.CHAPTER 9 Franchise Valuation under Q-Type Competition 189Martin L. LeibowitzReprinted from the Financial Analysts Journal (November/December 1998): 6274.CHAPTER 10 Value Enhancement and Cash-Driven Valuation Models 209Aswath DamodaranReprinted from AIMR Conference Proceedings: Practical Issues in Equity Analysis (February 2000):417.CHAPTER 11 FEVA: A Financial and Economic Approach to Valuation 229Xavier Adsera` and Pere Vin˜olasReprinted from the Financial Analysts Journal (March/April 2003):8087.CHAPTER 12 Choosing the Right Valuation Approach 243Charles M.C. LeeReprinted from AIMR Conference Proceedings: Equity Valuation in a Global Context (April 2003):414.CHAPTER 13 Choosing the Right Valuation Approach 259Robert Parrino, CFAReprinted from CFA Institute Conference Proceedings: Analyzing, Researching, and Valuing Equity Investments (June 2005):1528.CHAPTER 14 Valuing Illiquid Common Stock 279Edward A. Dyl and George J. JiangReprinted from the Financial Analysts Journal (July/August 2008):4047.PART III: EARNINGS AND CASH FLOW ANALYSIS 291CHAPTER 15 Earnings: Measurement, Disclosure, and the Impact on Equity Valuation 293D. Eric Hirst and Patrick E. HopkinsReprinted from the Research Foundation of CFA Institute (August 2000).CHAPTER 16 Cash Flow Analysis and Equity Valuation 349James A. OhlsonReprinted from AIMR Conference Proceedings: Equity Research and Valuation Techniques (May 1998):3643.CHAPTER 17 Accounting Valuation: Is Earnings Quality an Issue? 361Bradford Cornell and Wayne R. LandsmanReprinted from the Financial Analysts Journal (November/December 2003): 2028.CHAPTER 18 Earnings Quality Analysis and Equity Valuation 375Richard G. SloanReprinted from CFA Institute Conference Proceedings Quarterly (September 2006): 5260.CHAPTER 19 Is Cash Flow King in Valuations? 389Jing Liu, Doron Nissim, and Jacob ThomasReprinted from the Financial Analysts Journal (March/April 2007):5668.PART IV: OPTION VALUATION 407CHAPTER 20 Employee Stock Options and Equity Valuation 409Mark LangReprinted from the Research Foundation of CFA Institute (July 2004).CHAPTER 21 Employee Stock Option Valuation with an Early Exercise Boundary 465Neil Brisley and Chris K. AndersonReprinted from the Financial Analysts Journal (September/October 2008): 88100.PART V: REAL OPTIONS VALUATION 483CHAPTER 22 Real Options and Investment Valuation 485Don M. Chance, CFA, and Pamela P. Peterson, CFAReprinted from the Research Foundation of CFA Institute (July 2002).CHAPTER 23 Real-Options Valuation for a Biotechnology Company 573David Kellogg and John M. CharnesReprinted from the Financial Analysts Journal (May/June 2000):7684.About the Contributors 587Index 589