TIM KOLLER is a McKinsey partner and founder of McKinsey’s Strategy and Corporate Finance Insights team. In his 40 years of consulting, he has served clients globally on corporate strategy and capital markets, acquisitions and divestitures, and resource allocation. MARC GOEDHART is a senior expert in McKinsey’s Strategy and Corporate Finance practice and an endowed professor of corporate valuation at Rotterdam School of Management (RSM), Erasmus University. 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. MCKINSEY & COMPANY is a global management consulting firm. McKinsey combines bold strategies and transformative technologies to help organizations innovate and achieve lasting gains in performance.

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• About the Authors ixPreface xiAcknowledgments xvPart One Foundations of Value1 Why Value Value? 3Review Questions 132 Finance in a Nutshell 15Review Questions 243 Fundamental Principles of Value Creation 25Review Questions 514 Risk and the Opportunity Cost of Capital 53Review Questions 675 The Alchemy of Stock Market Performance 69Review Questions 836 The Stock Market and Economic Fundamentals 85Review Questions 1047 The Stock Market Is Smarter Than You Think 105Review Questions 1248 Return on Invested Capital 127Review Questions 1579 Growth 159Review Questions 180Part Two Core Valuation Techniques10 Frameworks for Valuation 183Review Questions 21211 Reorganizing the Financial Statements 215Review Questions 24912 Analyzing Performance 251Review Questions 27013 Forecasting Performance 273Review Questions 30014 Estimating Continuing Value 303Review Questions 32315 Estimating the Cost of Capital 325Review Questions 35516 Moving from Enterprise Value to Value per Share 357Review Questions 37817 Analyzing the Results 381Review Questions 39118 Using Multiples 393Review Questions 41319 Valuation by Parts 415Review Questions 434Part Three Advanced Valuation Techniques20 Taxes 439Review Questions 45421 Nonoperating Items, Provisions, and Reserves 457Review Questions 47222 Leases 473Review Questions 48823 Retirement Obligations 491Review Questions 50124 Measuring Performance in Capital-Light Businesses 503Review Questions 51825 CFROI and Other Ways to Measure Return on Capital 519Review Questions 52926 Inflation 531Review Questions 55027 Cross-Border Valuation 551Review Questions 569Part Four Managing for Value28 Corporate Portfolio Strategy 573Review Questions 59329 Strategic Management: Analytics 595Review Questions 61630 Strategic Management: Governance, Processes, and Decision Making 617Review Questions 63331 Mergers and Acquisitions 635Review Questions 66332 Divestitures 665Review Questions 68133 Digital Initiatives and Companies 683Review Questions 70234 Sustainability 703Review Questions 72035 Capital Structure, Dividends, and Share Repurchases 721Review Questions 75236 Investor Communications 753Review Questions 777Part Five Special Situations37 Leveraged Buyouts 781Review Questions 80038 Venture Capital 801Review Questions 81539 High-Growth Companies 817Review Questions 83240 Flexibility and Options 833Review Questions 86841 Emerging Markets 869Review Questions 88742 Cyclical Companies 889Review Questions 89843 Banks 899Review Questions 920Appendix A Discounted Economic Profit Equals Discounted Free Cash Flow 921Appendix B Derivation of Free Cash Flow, Weighted Average Cost of Capital, and Adjusted Present Value 925Appendix C Levering and Unlevering the Cost of Equity 931Appendix D Leverage and the Price-to-Earnings Multiple 939Appendix E Other Capital Structure Issues 943Appendix F Technical Issues in Estimating the Market Risk Premium 947Appendix G Global, International, and Local CAPM 951Appendix H Two-Stage Formula for Continuing Value 959Appendix I A Valuation of Costco Wholesale 961Index 987

TIM KOLLER is a McKinsey partner and founder of McKinsey’s Strategy and Corporate Finance Insights team. In his 40 years of consulting, he has served clients globally on corporate strategy and capital markets, acquisitions and divestitures, and resource allocation. MARC GOEDHART is a senior expert in McKinsey’s Strategy and Corporate Finance practice and an endowed professor of corporate valuation at Rotterdam School of Management (RSM), Erasmus University. 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. MCKINSEY & COMPANY is a global management consulting firm. McKinsey combines bold strategies and transformative technologies to help organizations innovate and achieve lasting gains in performance.

Select Guide Rating

• About the Authors ixPreface xiAcknowledgments xvPart One Foundations of Value1 Why Value Value? 3Review Questions 132 Finance in a Nutshell 15Review Questions 243 Fundamental Principles of Value Creation 25Review Questions 514 Risk and the Opportunity Cost of Capital 53Review Questions 675 The Alchemy of Stock Market Performance 69Review Questions 836 The Stock Market and Economic Fundamentals 85Review Questions 1047 The Stock Market Is Smarter Than You Think 105Review Questions 1248 Return on Invested Capital 127Review Questions 1579 Growth 159Review Questions 180Part Two Core Valuation Techniques10 Frameworks for Valuation 183Review Questions 21211 Reorganizing the Financial Statements 215Review Questions 24912 Analyzing Performance 251Review Questions 27013 Forecasting Performance 273Review Questions 30014 Estimating Continuing Value 303Review Questions 32315 Estimating the Cost of Capital 325Review Questions 35516 Moving from Enterprise Value to Value per Share 357Review Questions 37817 Analyzing the Results 381Review Questions 39118 Using Multiples 393Review Questions 41319 Valuation by Parts 415Review Questions 434Part Three Advanced Valuation Techniques20 Taxes 439Review Questions 45421 Nonoperating Items, Provisions, and Reserves 457Review Questions 47222 Leases 473Review Questions 48823 Retirement Obligations 491Review Questions 50124 Measuring Performance in Capital-Light Businesses 503Review Questions 51825 CFROI and Other Ways to Measure Return on Capital 519Review Questions 52926 Inflation 531Review Questions 55027 Cross-Border Valuation 551Review Questions 569Part Four Managing for Value28 Corporate Portfolio Strategy 573Review Questions 59329 Strategic Management: Analytics 595Review Questions 61630 Strategic Management: Governance, Processes, and Decision Making 617Review Questions 63331 Mergers and Acquisitions 635Review Questions 66332 Divestitures 665Review Questions 68133 Digital Initiatives and Companies 683Review Questions 70234 Sustainability 703Review Questions 72035 Capital Structure, Dividends, and Share Repurchases 721Review Questions 75236 Investor Communications 753Review Questions 777Part Five Special Situations37 Leveraged Buyouts 781Review Questions 80038 Venture Capital 801Review Questions 81539 High-Growth Companies 817Review Questions 83240 Flexibility and Options 833Review Questions 86841 Emerging Markets 869Review Questions 88742 Cyclical Companies 889Review Questions 89843 Banks 899Review Questions 920Appendix A Discounted Economic Profit Equals Discounted Free Cash Flow 921Appendix B Derivation of Free Cash Flow, Weighted Average Cost of Capital, and Adjusted Present Value 925Appendix C Levering and Unlevering the Cost of Equity 931Appendix D Leverage and the Price-to-Earnings Multiple 939Appendix E Other Capital Structure Issues 943Appendix F Technical Issues in Estimating the Market Risk Premium 947Appendix G Global, International, and Local CAPM 951Appendix H Two-Stage Formula for Continuing Value 959Appendix I A Valuation of Costco Wholesale 961Index 987

TIM KOLLER is a McKinsey partner and founder of McKinsey’s Strategy and Corporate Finance Insights team. In his 40 years of consulting, he has served clients globally on corporate strategy and capital markets, acquisitions and divestitures, and resource allocation. MARC GOEDHART is a senior expert in McKinsey’s Strategy and Corporate Finance practice and an endowed professor of corporate valuation at Rotterdam School of Management (RSM), Erasmus University. 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. MCKINSEY & COMPANY is a global management consulting firm. McKinsey combines bold strategies and transformative technologies to help organizations innovate and achieve lasting gains in performance.

Select Guide Rating

• About the Authors ixPreface xiAcknowledgments xvPart One Foundations of Value1 Why Value Value? 3Review Questions 132 Finance in a Nutshell 15Review Questions 243 Fundamental Principles of Value Creation 25Review Questions 514 Risk and the Opportunity Cost of Capital 53Review Questions 675 The Alchemy of Stock Market Performance 69Review Questions 836 The Stock Market and Economic Fundamentals 85Review Questions 1047 The Stock Market Is Smarter Than You Think 105Review Questions 1248 Return on Invested Capital 127Review Questions 1579 Growth 159Review Questions 180Part Two Core Valuation Techniques10 Frameworks for Valuation 183Review Questions 21211 Reorganizing the Financial Statements 215Review Questions 24912 Analyzing Performance 251Review Questions 27013 Forecasting Performance 273Review Questions 30014 Estimating Continuing Value 303Review Questions 32315 Estimating the Cost of Capital 325Review Questions 35516 Moving from Enterprise Value to Value per Share 357Review Questions 37817 Analyzing the Results 381Review Questions 39118 Using Multiples 393Review Questions 41319 Valuation by Parts 415Review Questions 434Part Three Advanced Valuation Techniques20 Taxes 439Review Questions 45421 Nonoperating Items, Provisions, and Reserves 457Review Questions 47222 Leases 473Review Questions 48823 Retirement Obligations 491Review Questions 50124 Measuring Performance in Capital-Light Businesses 503Review Questions 51825 CFROI and Other Ways to Measure Return on Capital 519Review Questions 52926 Inflation 531Review Questions 55027 Cross-Border Valuation 551Review Questions 569Part Four Managing for Value28 Corporate Portfolio Strategy 573Review Questions 59329 Strategic Management: Analytics 595Review Questions 61630 Strategic Management: Governance, Processes, and Decision Making 617Review Questions 63331 Mergers and Acquisitions 635Review Questions 66332 Divestitures 665Review Questions 68133 Digital Initiatives and Companies 683Review Questions 70234 Sustainability 703Review Questions 72035 Capital Structure, Dividends, and Share Repurchases 721Review Questions 75236 Investor Communications 753Review Questions 777Part Five Special Situations37 Leveraged Buyouts 781Review Questions 80038 Venture Capital 801Review Questions 81539 High-Growth Companies 817Review Questions 83240 Flexibility and Options 833Review Questions 86841 Emerging Markets 869Review Questions 88742 Cyclical Companies 889Review Questions 89843 Banks 899Review Questions 920Appendix A Discounted Economic Profit Equals Discounted Free Cash Flow 921Appendix B Derivation of Free Cash Flow, Weighted Average Cost of Capital, and Adjusted Present Value 925Appendix C Levering and Unlevering the Cost of Equity 931Appendix D Leverage and the Price-to-Earnings Multiple 939Appendix E Other Capital Structure Issues 943Appendix F Technical Issues in Estimating the Market Risk Premium 947Appendix G Global, International, and Local CAPM 951Appendix H Two-Stage Formula for Continuing Value 959Appendix I A Valuation of Costco Wholesale 961Index 987