Stock Valuation: An Essential Guide to Wall Street's Most Popular Valuation Models (McGraw-Hill Library of Investment and Finance)

A practical look at the valuation models used by Wall Street Veteran consultant and educator Scott Hoover analyzes the limitations and idiosyncrasies of major valuation models. He examines the time value of money, cash flow analysis, discount rates, and other tools, and describes how money managers and bankers apply them to valuation. Contents......Page 7 List of figures......Page 13 Preface......Page 15 Acknowledgments......Page 17 Who Values Stocks?......Page 19 Financial Analysts: Equity Research......Page 20 Individuals......Page 21 The Objective of Equity Investment......Page 22 Earnings vs. Cash Flow......Page 23 Good Companies vs. Good Stocks......Page 24 Size Matters......Page 25 Growth vs. Value......Page 26 Few Stocks vs. Many Stocks......Page 29 Broad-Based Portfolios vs. Concentrated Portfolios......Page 30 The Investment Process......Page 32 Class/Industry Selection......Page 33 Asset Selection......Page 34 Organization of the Book......Page 39 Case Study: O'Charley's......Page 40 Purpose and Scope......Page 43 Types of Orders......Page 44 Dealer Markets......Page 47 Auction Markets......Page 48 What Have We Learned about Price Formation?......Page 51 Market Efficiency......Page 52 The Evidence......Page 53 The S&P 500!......Page 56 Warren Buffett......Page 57 Peter Lynch......Page 58 Bill Miller......Page 59 In Practice . . .......Page 62 Case Study: O'Charley's......Page 63 In Theory . . .......Page 65 The Discount Rate......Page 66 Multiple Cash Flows......Page 67 Implied Discount Rates......Page 72 Expressing Interest Rates......Page 74 Application: Retirement Planning......Page 78 Summary......Page 83 Purpose and Scope......Page 85 Financial Statements......Page 86 The Balance Sheet......Page 87 The Income Statement......Page 97 The Statement of Cash Flows......Page 105 Linkages Between the Statements......Page 111 Building the Free Cash Flow Equation......Page 113 Sales and Cost of Goods Sold: Implications for Free Cash Flow......Page 115 Dealing with Capital Expenditures and Depreciation......Page 118 Cash......Page 119 The Free Cash Flow Equation......Page 120 In Practice . . .......Page 121 Nonsynchronous Financial Statements......Page 122 Differences in Terminology and Reporting Structure......Page 125 Case Study: O'Charley's......Page 126 A Note on SFAS No. 123R......Page 133 Summary......Page 134 Purpose and Scope......Page 135 In Theory . . .......Page 136 Common Size Financial Statements......Page 137 The Turnover Balance Sheet......Page 140 The DuPont Method......Page 143 Special Ratios......Page 158 Unused Assets......Page 163 Identifying Misleading Items......Page 166 Case Analysis: O'Charley's......Page 168 Case Study: Applebee's......Page 173 Summary......Page 178 Purpose and Scope......Page 181 The Pecking Order Theory......Page 184 Internal Financing......Page 186 External Financing......Page 189 Signaling Effects......Page 191 The Cost of Capital......Page 194 Problems with Estimating the Cost of Debt......Page 205 Problems with Estimating the Cost of Preferred Stock......Page 209 Problems with Estimating the Cost of Equity......Page 210 Problems with Estimating Weights for the WACC Calculation......Page 215 Case Study: O'Charley's......Page 218 Summary......Page 220 Purpose and Scope......Page 223 In Theory . . .......Page 224 Growth from Retained Earnings......Page 227 The Forecasting Process......Page 230 Case Study: O'Charley's......Page 254 Summary......Page 259 Purpose and Scope......Page 263 In Theory . . .......Page 265 The Black-Scholes Option Pricing Model......Page 268 Valuing Yet-to-Be-Issued Employee Stock Options......Page 290 In Practice . . .......Page 295 A Note on Dilution-Based Approaches......Page 296 Different Contracts and Lack of Complete Information......Page 297 Early Exercise......Page 299 Case Study: O'Charley's......Page 302 Summary......Page 307 Purpose and Scope......Page 309 A Note on Model Error......Page 311 Screening......Page 312 Comparables ("Comps") Analysis......Page 314 Discounted Dividends and the Malkiel Model......Page 327 A Relative Version of the Malkiel Model: Growth-Adjusted Comps......Page 335 In Practice . . .......Page 340 What Stocks Can We Include?......Page 341 Outliers......Page 342 Case Study......Page 343 Summary......Page 345 Purpose and Scope......Page 347 In Theory . . .......Page 348 The DCF Model......Page 352 In Practice . . .......Page 369 Case Study......Page 370 Other Recommended Readings......Page 374 Bibliography......Page 377 C......Page 381 E......Page 382 G......Page 383 M......Page 384 R......Page 385 Y......Page 386 Successful investing is about beating market benchmarks. To do this, you need to know how to identify, evaluate, and invest in mispriced stocks. Stock Valuation provides you with a hands-on examination of Wall Street's most widely practiced valuation models, focusing on the theoretical underpinnings of those models and how they perform when applied to actual trades in the marketplace.Accessible to sophisticated investors and indispensable for investment professionals, Stock Valuation features: Strategies drawn from three investment professionals who have outperformed the markets over extended periods of time-Warren Buffett, Peter Lynch, and legendary mutual fund manager Bill Miller, Step-by-step examination of the building blocks of accurate valuation, leading to the construction and implementation of a Discounted Cash Flow (DCF) model, An instructive chapter-by-chapter valuation study of an actual company, providing examples of each concept applied in a real-life situation.Underpriced companies don't generally announce their existence, but they do exist. Stock Valuation describes the tools necessary to uncover and profit from underpriced stocks before the rest of the market discovers them and closes the value gap. In Stock Valuation, Seasoned Valuation Practitioner And Educator Scott Hoover Has Crafted A Valuation Guidebook That Is Both Theoretically Sound And Consistent With How Valuation Is Conducted By Wall Street Professionals. Covering Everything From Price Formation And Present And Future Value Of Cash Flows To Discount Rate Calculation, Analysis Of Key Financial Statements, Capital Structure And Cost Of Capital, And More, It Introduces The Valuation Techniques That Investment Professionals Use, Explains How And Why They Use Each, And Advises Investors On Mitigating The Possible Biases, Limitations, And Idiosyncrasies They Present.--jacket. Setting The Stage -- Price Formation, Market Efficiency, And Great Investors -- The Time Value Of Money -- Understanding Financial Statements -- Interpreting Financial Statements -- Capital Structure And The Cost Of Capital -- Forecasting -- Valuing Employee Stock Options -- Relative Valuation And Screening -- The Discounted Cash Flow Model. Scott A. Hoover. Includes Bibliographical References (p. 359-361) And Index. Takes a practical look at the valuation models used by a Wall Street Veteran consultant and educator. This work analyzes the limitations and idiosyncrasies of major valuation models. It examines the time value of money, cash flow analysis, discount rates, and other tools, and describes how money managers and bankers apply them to valuation. A critical, practical look at the five stock valuation models most widely used by Wall Street Based on insights from the author's unique access to top investors, including legendary mutual fund manager Bill Miller of Legg Mason Describes problems and limitations behind commonly used valuation models and how readers can plan for them This is the only comprehensive, practical resource for understanding, designing, and installing all major types of renewable energy systems. Find workable solutions for a variety of building types, including commercial, public and residential structures